MINNEAPOLIS—A big shake-up in the fertilizer business is demolishing the share prices of companies that make nutrients.
Russian fertilizer company Uralkali on Monday said it will drop out of a pricing cartel that kept prices up.
The move is likely to sharply reduce the price of potash, a nutrient used in fertilizers and a huge industry in Canada and globally. Investors are reacting by chopping the share prices of some fertilizer companies by 20 per cent.
The Mosaic Co. is down 19 per cent. Potash Corp. of Saskatchewan is down almost 21 per cent.
Officials with PotashCorp and K + S Potash said it was too soon to comment on how lower prices could affect their operations, though both companies said they were monitoring the situation.
“We will continue to run our business as we usually do and we will keep an eye on the situation,” said Bill Johnson of Potash Corp. “It is important in circumstances like this not to overreact.”
It’s not just the producers that face economic consequences of Uralkali price-cut gambit. The Saskatchewan government says it is too soon to say how the drop in the potash market will affect its bottom line or the province’s economy, but the province has been counting on potash revenues to help meet its goal of a modest budget surplus this year.
Potash is forecast to contribute almost $520 million to provincial coffers in 2013-2014.
But an economist at the Royal Bank of Canada said a big price drop could reduce forecast economic growth in Saskatchewan this year by almost half.
Patricia Mohr, a Scotiabank commodity expert, suggested proposed new potash projects in Saskatchewan will now probably be delayed a few years.
“The prices that are required to justify investment are, in many cases, quite high, so I think that a lower pricing environment will mean the deferral of some capital investment in Saskatchewan,” she said.
The commodity has been selling for close to $400 per ton. Some analysts believe the price could soon fall below $300.