Further falls in phosphate prices appear a distinct possibility after the break-up of a second global marketing cartel.
The demise of the Phosphate Chemicals Export Association, better known as PhosChem, comes just months after Uralkali ended its involvement in the Belarusian Potash Company (BPC), forcing the break-up of that cartel in July.
Markets are now suggesting that the end of the two rivals casts a shadow over the main remaining phosphate cartel, Canpotex.
PhosChem was dominant in North American exports in a global market worth about £18.7billion. It sold phosphates produced by the Potash Corp of Saskatchewan in Canada and Mosiac, based in Minnesota in the US.
No formal reason has been given for PhosChem’s disbanding on Tuesday, but reports suggest it could have been prompted by Mosiac’s decision to form a phosphate joint venture with Saudi Arabian mining and metals group Ma’aden and petrochemical firm, Saudi Basic Industries Corp JSC. The creation of the joint venture put it in direct competition with PhosChem.
Scotiabank analyst Ben Isaacson said that deal would allow Mosiac to supply phosphate to India, where agricultural output is soaring, from Saudi Arabia rather than its own operations in Florida.
BMO Nesbitt Burns analyst Joel Jackson said the PhosChem break-up was logical as Potash Corp had started selling phosphoric acid directly. Its sales via PhosChem had also declined.
Canpotex involves PotashCorp, Mosaic and Agrium, another fertiliser firm based in Calgary, Canada. Markets are questioning its future as they see the break-up of both PhosChem and BPC as highlighting changes in the way individual fertiliser businesses sell their products. While history has involved them working in cartels since the 1880s, the current desire appears to be in each pursuing their own market share. That should force down prices as competition between them for sales increases.
Adam Thwaites, a fertiliser manager with UK grain farmers’ co-operative Openfield, said prices for diammonium phosphate (DAP), triple superphosphate (TSP) and murate of potash (MP) had fallen. He added: “Phosphate (P) and potash (K) markets have seen significant price falls over the past 12 months and are currently trading near to the lows of 2009-10 due to a lack of recent demand.”
He viewed the lower prices as an opportunity for those farmers who have taken a P and K holiday in recent years to redress the balance and to again apply both fertilisers to farmland to avoid depleting soil reserves further.
PhosChem operated under the Webb-Pomerene Act of 1918, which legally allows some US-based industries be exempt from competition laws so they can negotiate prices to promote exports. Canpotex has similar protection.
But the continuation of the cartels was called into question in a report issued last month by the American Antitrust Institute – The Fertilizer Oligopoly; the case of global antitrust enforcement.
It said domestic phosphate buyers had over the last five years been overcharged by billions of pounds because of the cartels.
Report authors, Auburn University’s Professor C. Robert Taylor and the institute’s Diana Moss, added: “Whether a reluctance to pursue enforcement actions against fertiliser producers or cartels is due to international political sensitivities, the immense economic and political power of dominant fertiliser producers, or insufficient resources for antitrust (competition) investigations, is unclear.
“But it strongly begs the question: have the transnational fertiliser corporations become too big to prosecute?”
Both also noted that Wall Street commentators had in recent years observed that global fertiliser markets are now so manipulated that “they might make a Saudi prince blush” in reference to the Opec oil cartel which essentially controls global oil prices.