A new potash market study through 2020 from Rabobank’s Food and Agribusiness Research and Advisory Group sees substantial overcapacity, ranging between 59-100 percent of demand. While the report says that current potash consortiums Canpotex Ltd. and Belarusian Potash Co. have the scale and market access to discourage most greenfield projects, the geopolitical motives of major importers – such as Brazil, China, and India – might overrule the pure economic parameters and make it difficult to maintain the oligopolistic profits of the industry.

The study noted that those three countries were collectively responsible for 40 percent of total potash imports in 2011. The question is whether they are prepared to endure uneconomic projects for the sake of securing supplies either domestically or in overseas investment. China has become self sufficient in nitrogen and phosphate, and could very well pursue the same route with potash. Brazil, too, has favored domestic and regional fertilizer development, and could do likewise. India, with no potash reserves, would have to have the wherewithal to look offshore. It has participated in offshore joint ventures for other products. Certainly, the some 60 junior potash companies currently looking for investor dollars today look toward China and India for encouragement.

“In the end, it is mainly geopolitical and long-term strategic security parameters that justify such investments,” said Rabobank analyst Dirk Jan Kennes. “From a pure economics angle, many of these investments might render losses if prices come under pressure due to oversupply.”

New greenfield projects face high financing costs and the fact that current low-cost producers will be increasing their own output by brownfield production. These producers could reduce prices to a level that makes new production uneconomic, added co-author Rakhi Sehrawat.

Existing producers also add the mantra that potash mines are expensive to build and that they take longer to build than expected. Also add to that a very snug labor supply in Saskatchewan. Potash Corp. of Saskatchewan Inc. President and CEO Bill Doyle reiterated the first two again last week in a virtual interview on the internet, when he said claims of new capacity are “overrated and overplayed.” “Everyone talks about 2015, but have they started construction yet?”, he asked. He noted that PotashCorp will have one-half of the new capacity coming online in the near term via its brownfields.

"The challenge is everybody says they’re going to build one, but until you’ve actually committed the billions of dollars it takes to build a new mine, there’s actually very little that has actually been announced that has started construction," said Agrium spokesman Richard Downey. He also noted that he reminds people that Rabobank has some good agriculture analysts, but they aren’t really experts on nutrients.

The Mosaic Co. had no response to the study, but did note that it would be releasing earnings in two weeks.

Rabobank says the current situation of high prices and restricted supplies is set to be turned on its head in the next few years if deep-pocketed mining giants such as BHP Billiton, Vale S.A., and Rio Tinto opted to actually build mines. The bank said this offers the possibility of falling potash prices. It said whatever happens, the stranglehold of Canpotex and BPC on potash prices is expected to diminish, because excess capacity will put downward pressure on prices.

BHP has already shown that it would rather buy than build, with its ill-fated attempt to buy PotashCorp a few years ago. However, it has spent several million on developing its Jansen mine in Saskatchewan, and the industry is closely watching to see if its board of directors will pull the trigger on completing that mine later this year.

Short of a

The U.S. Court of Appeals for the 7th Circuit, sitting in Chicago, in an 8-0 decision, has sent a potash antitrust case against major global producers back to the U.S. District Court for the Northern District of Illinois, Eastern Division. The defendants – Potash Corp. of Saskatchewan Inc., The Mosaic Co., Agrium Inc., Uralkali, Belaruskali, Silvinit, and IPC – are accused of price-fixing. The plaintiffs in the class action suit, Minn-Chem Inc. v. Agrium Inc., are U.S. potash buyers, who alleged that the defendants, which produce 71 percent of the world’s potash, initiated a cartel that beginning in mid-2003 drove prices up some 600 percent by 2008.

The suit was a merger of earlier cases filed in 2008. Plaintiffs included Minn-Chem Inc., Gage’s Fertilizer and Grain Inc., Kraft Chemical Co., Shannon D. Flinn, Westside Forestry Services, Thomasville Feed & Seed Inc., Kevin Gilliespie, Gordon Tillman, Feyh Farms Co., William H. Coaker Jr., and David Baier.

The Court of Appeals reversed its own two-judge panel, which last fall had decided that the complaint failed to meet the requirements of the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA) (GM Oct. 3, 2011, p. 14). However, the Court of Appeals agreed to rehear the case, with eight of its eleven judges weighing in. In the meantime, the U.S. Department of Justice and the Federal Trade Commission filed an Amici Curiae brief in support of neither party, though the brief did argue for a broader interpretation of the FTAIA. This time the Court found that the district court correctly ruled that the complaint does state a claim under federal antitrust laws, including the FTAIA. While ruling that the case could proceed, the lower court had allowed the appeal, prior to discovery or a trial. Now the case will go back for discovery, as a prelude to a trial, assuming no other motions and/or rulings derail it in the meantime.

“The company has a policy of strict compliance with antitrust and competition laws wherever it does business,” a PotashCorp spokesman told Green Markets. “PotashCorp intends to vigorously defend itself against these claims, which it considers to be without foundation.”

“We respectfully disagree with the court’s ruling and intend to vigorously defend our interests in front of the federal district court,” said Rich Mack, Mosaic executive vice president, general counsel.

Agrium said it was still awaiting word from its attorneys. Other defendants have yet to respond.

The North American potash industry is no stranger to antitrust cases, having won some and lost some in the past.

In language in stark contrast to its decision last fall, the Court said, “The inference from these allegations is not just plausible but compelling that the cartel meant to, and did in fact, keep prices artificially high in the United States.” It also said it was satisfied that the allegations suffice at this stage to support a plausible story of concerted effort.

“It is objectively foreseeable that an international cartel with a grip on 71 percent of the world’s supply of a homogeneous commodity will charge supracompetitive prices, and in the absence of any evidence showing that arbitrage is impossible (and there is none here), those prices (net of shipping costs) will be uniform throughout the world.
Higher prices cannot be divorced from reductions in supply, and so the effects here are a rationally expected outcome of the conduct stated in the complaint.

“The total world market for potash, in which the United States is an important consumer, is allegedly under the thumb of a global cartel consisting primarily of the companies listed above,” said the Court. “This cartel restrained global output of potash in order to inflate prices. The cartel members used a rolling strategy: