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Opinion: potash groups come to their senses

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If it looks like a duck, and quacks like a duck, it is a duck, the saying goes.

So do not be befuddled into thinking that the agreement by PotashCorp and its North American kin to sell potash at $460 a tonne to India is anything but a climbdown.

It looks like one – the Canpotex potash export consortium, of which PotashCorp is a member, had been holding out for north of $600 a tonne.

And it quacks like one. Or, in the words of Sterne Agee, the broker: "Canpotex finally got in line behind smaller producers, to avoid being completely shut out of India."

PotashCorp is entitled to its opinion that the Canpotex deal, and similarly priced ones before it from the likes of Russia's Silvinit, show "customer understanding of the premium value" of potash.

Others may believe that potash producers have come to understand the importance of having customers.

Share price danger

It would be interesting to know which of the forces ranged against Canpotex finally tipped the balance.

Was it the record decline in North American potash applications? The appreciation that farmers really will not pay up for potash, given the credit crunch's grip on their purse strings and with crop prices treading levels of one half of last year's peak?

Was it the fall in fertilizer groups' share prices – a risk when mining groups may have their eyes on potash prey?

Vale's reported interest in Mosaic, another Canpotex member, followed lingering rumours that Anglo-Australian BHP Billiton covets PotashCorp, whose shares up until Thursday had dropped by 25% in six weeks.

Disunity risk

Maybe it was the appreciation that the global potash "alliance" is not as indomitable is it had thought.

That, as Opec the oil cartel has often realised, self-interest is a powerful counterweight to teamwork.

And that global pricing discipline was unlikely to hold for ever and, once broken - by Silvinit on this occasion - would be hellish difficult to repair.

'Noble cause'

Whatever, the important factor is that the impasse has been broken. And, indeed, it looks like something of a win-win deal.

Farmers get cheaper potash to pursue what PotashCorp boss Mr Doyle terms their "noble cause".

Fertilizer groups get their cashflows moving again, and can avoid the expense of mothballing further capacity, let alone the embarrassment of further profit warnings to follow the two PotashCorp alone has already delivered this year.

Indeed, the market reaction was to send fertilizer groups' shares up 7%. Now that wasn't so painful, was it?


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