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Wednesday, August 07, 2013 

'Unfettered Free Market' Capitalists UPSET When Price Fixing Cartels Face Some Actual 'Competition'

The phoniest people who walk planet Earth are the so-called 'unfettered free market' capitalists who repeat ad nauseum that they embrace competition in the world of business. HUMBUG! 

I'm not even going to touch on the price fixing / gouging that takes place amongst Canada's gasoline retailers or Telecom industry. No, I want to use the global Potash industry as a prime example of how huge cartels inflate and keep prices artificially high but then whine like little babies when some actual competition lowers the inflated price of their commodity:

"... when Uralkali suddenly pulled out of Belarusian Potash Co. (BPC), the bottom fell out of the largest potash cartel in world, with 43 per cent of the world's supply of the key fertilizer ingredient (along with nitrogen and phosphate). Or at least BPC was the largest potash cartel in the world until last Tuesday. Now it's Canpotex, the offshore marketing agency owned by PotashCorp, Mosaic and Agrium, which has about one third of the world market. Normally, you would think it would be good news to go from being the world's second-largest cartel to the largest cartel, er ... offshore marketing agency. Unfortunately, cartels (sorry, marketing agencies), like chains, are only as strong as their weakest link.

In this case, BPC is losing its biggest producer in Uralkali, which has about 13 per cent of world production. That makes Uralkali slightly larger than PotashCorp, which has about 12 per cent.
With Uralkali threatening to undercut BPC and Canpotex by $100 US per ton in the Chinese market (which accounts for more than 20 per cent of world demand for potash), potash prices could plunge below $300 US per ton. That would carve a huge chunk - about 25 per cent - out of the revenues of potash producers, like PotashCorp, and leave a big dent in the provincial treasury, which relies on potash for about five per cent of its revenues.

This fiscal year, potash is forecast to generate about $520 million in royalty revenues for the province. A $50-a-ton reduction would chop those revenues by $130 million; a $100-a-ton reduction, double that.

So if Uralkali makes good on its threat to sell potash to China at $300 US a ton or less, the impact on the provincial government could be more than a quarter of a billion dollars a year. That would punch a big hole in the budget about the size of the Ministry of Economy's spending for the year.
And it doesn't end there. Potash is a big driver of the Saskatchewan economy. RBC says a double-digit decline in potash production could reduce the province's economic growth by one per cent, with another half a percentage point taken off for stalled construction projects (like Mosaic's $2 billion expansions at Belle Plaine and Colonsay).

The net result would be a 1.5 per cent reduction in GDP, which is forecast to grow by 2.9 per cent in 2013. In other words, this one move by a Russian potash company could cut our economic growth in half this year. That's the short-term impact. The long-term impact could be much worse. Some commentators have suggested, it's the end of the potash world as we know it. 

If prices remain at or below $300 US for an extended period, projects like BHP Billiton's $15-billion, eight million- tonne-per year project at Jansen Lake could be dead in the water. And what would happen to Canpotex? What about expansion projects at Mosaic, Potash-Corp and Agrium? Whither greenfield projects, like K+S's Legacy mine, Western Potash's Milestone project and Vale's Kronau project?
Bruce Johnson, Business Editor, Regina Leader-Post

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