Sergei Kuznetsov in Minsk -

Restoring the export cartel between Uralkali, the Russian potash miner, and Belaruskali, its Belarusian rival, could be beneficial for both giants, as well as for the global potash market. However, with distrust lingering after the painful rupture of their cooperation in 2013 and both companies now thriving on their own, the longer they remain apart, the less likely it's seen the cartel will be reinstated.

“I believe that the point of no return has not been passed yet, and that there is still a chance of joint cooperation,” Dmitry Konyaev, CEO of Russian fertilizer producer Uralchem, which relies on potash for its products, told the Russian business daily Vedomosti on December 1. “The only thing that matters is that it should be really effective for both companies.”

Uralchem, owned by the Minsk-born oligarch Dmitry Mazepin, bought a 20% stake in Uralkali at the end of 2013. The deal was followed by a decision by Suleiman Kerimov, then Uralkali’s largest shareholder, to sell 21.75% of the company to Mikhail Prokhorov, another Russian billionaire and the owner of the Brooklyn Nets US basketball team.

The change of ownership was an attempt to smooth relations with the Belarusian authorities after Uralkali’s sudden withdrawal from the Belarusian Potash Company (BPC) – the joint export cartel with a ‘price over volume’ export strategy. Uralkali’s decision sent global potash prices plummeting, however the miner argued that it had been forced into making this step because the Belarusian side had allegedly been negotiating sales outside the cartel.

In response, the Belarusian authorities accused Uralkali of attempting to undermine the country’s potash industry. Vladislav Baumgertner, then Uralkali’s chief executive, was arrested in Minsk after travelling to the Belarusian capital at the invitation of the Belarusian prime minister. After Kerimov agreed to sell his stake in Uralkali, Baumgertner was allowed to return to Moscow.

BPC, now acting as a potash export body for just Belaruskali, has “a new young team” that is engaged in sales on international markets, and it has gained “a lot of expertise,” Konyaev said. “However, there is more to learn, including how to operate in the long term on the global potassium market, rather than load production capacities to 100% for the short term,” he added.

BPC has reasons to be satisfied with its current sales push. According to Irina Savchenko, spokesperson for the Belarusian company, the potash producer intends to reach a record 9.2mn-9.3mn tonnes of export in 2014. In 2013, BPC’s exports stood at just 5.7m tonnes. Savchenko explains that the priority of BPC’s marketing policy has been to focus on consumers’ particular needs – "this strategy has helped us to achieve these results,” she tells bne IntelliNews

Battle for market share

Uralkali, which abandoned its ‘price over volume’ strategy after it walked out of BPC, also appears to be in good shape. The miner’s share of the global potash market had fallen to 17% a year ago on the eve of its withdrawal from BPC, but this had recovered to 23% in the first half of 2014.

Savchenko says that Uralkali’s calculation methodology does not count potash shipments from Canada to the US. “If BPC were to approach the calculation in the same way, its market share would be no less than 22.5% for the first half of 2014,” she says, meaning that the global market shares of Uralkali and BPC are almost now on a par. “The position of BPC on the market now is very stable.”

Uralkali said in a presentation made to investors in November that its decision to change course in July 2013 has contributed to a healthier potash supply-demand balance in the market. “Demand was boosted by more affordable prices and reached record highs in the first quarter of 2014. Stable prices have been encouraging customers to increase their pace of buying,” it said.

No talking

According to Savchenko, there are no negotiations at the moment between Uralkali and BPC concerning any possible restoration of their export cooperation. However, the sides have not excluded the possibility of resuming cooperation. “Never say never,” she says.

“Obviously, Uralkali now has a number of serious problems on which it should be working,” Savchenko adds, hinting at an accident that occurred in November at the Russian company's Solikamsk-2 mine. Shortly after the mine’s evacuation, a sinkhole of up to 40 metres was detected to the east of the Solikamsk-2 production site.

Elena Sakhnova, an analyst at VTB Capital, believes that the longer Uralkali and Belarus delay restoring the export cartel, the less likely they will be to strike a deal. “When the Belarusians were left without any sellers [after Uralkali exited BPC], they were shocked and really wanted to restore the cartel," Sakhnova explains. "But now they are doing well, selling potash fertilisers by themselves, and they do not actually need Uralkali’s assistance.”

Significantly, the Belarusian side now has full control over the entire selling process. “They sell by themselves, and can control themselves,” Sakhnova says, adding that previously the Belarusian authorities believed that the behaviour of Uralkali’s management was not fully transparent. In particular, according to Belarusian law enforcement officials, Uralkali allegedly provided illegal discounts to some buyers and favoured Uralkali’s own production in the cartel.

Vladimir Semashko, first deputy prime minister of Belarus, told journalists at the end of October that Belarus and Uralkali would not resume cooperation in the short-term perspective. He did not elaborate any further.

Says Sakhnova: “Has the point of no return [in relations between Uralkali and Belaruskali] already been passed? Probably not – it is necessary to negotiate. However, we are not seeing these negotiations. I believe that both sides lack confidence that they really need restoration of their relations.”