PotashCorp Eager to Increase its Market Share
Thursday March 14, 2013, 4:00am PDT
By James Wellstead - Exclusive to Potash Investing News

Potash Corporation of Saskatchewan’s (TSX:POT,NYSE:POT) bid for Israel Chemicals (TLV:ICL) could see the Saskatchewan-based company — and its export marketing arm, Canpotex — expand its already dominant position in key fertilizer markets. But negotiations are still taking place and some Israelis do not support PotashCorp’s plan. 

Andrew Benson, an analyst with Citigroup (NYSE:C) in London told the Financial Times that the addition of Israel Chemicals’ potash assets would bump Canpotex’s market share to about 95 percent in India and China and 80 percent in Brazil.

These three emerging economies will be forced to remain price takers if the oligopolic potash market structure continues to solidify.

The role for junior potash

Buyer countries like India and Chain have, however, been taking strides to reduce their reliance on North American and Belarussian cartel suppliers through financing or entering into joint ventures with independent junior potash producers.

In January, Indian state-backed firms announced a financing and offtake agreement with Karnalyte Resources (TSX:KRN), while a similar deal remains in the works with Saskatchewan-based Encanto Potash (TSXV:EPO).

Arizona-based Prospect Global Resources (NASDAQ:PGRX) also agreed last year to supply potash for a 10-year term to China’s Sichuan Chemical Industry Holding Group Company in exchange for $100 million and a stake in the project.

“This is a great opportunity for the buyer side because those guys consume huge amounts of product and they are prisoners of the big two distribution groups from Canada and Russia,” Patricio Varas, CEO of Western Potash (TSX:WPX), told Reuters earlier this month on the sidelines of the PDAC mining convention in Toronto.

Rabobank analyst Rakhi Sehrawat told Agrimoney.com that she believes investing and developing independent greenfield potash projects will be a likely strategy for large buyers looking to secure long-term supply.

“To secure long-term supply at a reasonable price, it has become imperative for large potash importers to facilitate supply development … by pumping in financing, entering supply contract agreements, or acquiring existing mines,” she said.