BMO Capital Markets calls the breakdown of the Belarus Potash Company (BPC) cooperative between Uralkali (URALL.PK) and Belaruskali "the end of the potash world as we know it."
"Discipline and price-over-volume leadership in the potash industry seem to have crumbled, and we expect a major exit by investors out of potash producers (POT, MOS, ISCHF.PK, IPI, AGU, SQM and CMP) and the fertilizer sector in general," firm says. "We believe potash earnings estimates will move materially lower, but industry multiples will likely lower too as investors question why potash producers still deserve historical premium multiples over diversified miners."
One final note: "Perhaps Uralkali is simply attempting to shock the market to encourage Belaruskali to reconsider marketing together, but these discussions would likely have already happened behind the scenes."
Potash producers plunge in overseas trading after Russian potash producer Uralkali (URALL.PK) says it is leaving its JV with Belaruskali, accusing Belaruskali of violating the terms of their agreement. Uralkali will now export deliveries via its own Swiss-based Uralkali Trading. (statement)
On a conference call, CEO Vladislav Baumgertner said the move could trigger a drop in global potash prices to below $300/tonne in H2, from a current $400/tonne.
Uralkali and Belaruskali's JV, Belarus Potash Company (BPC), accounts for 43% of the global potash export market.
Uralkali -14.2% on the MCX. Israel Chemicals (ISCHY.PK, ISCHF.PK) -10.7% in Tel Aviv. K S AG -16% in Paris.
North American fertilizer stocks in play: POT, AGU, MOS
Teva (TEVA) enjoyed 12B shekels ($3.3B) of tax breaks from 2006-2011 as part of a government program to encourage capital investment. Teva topped the list of companies with the largest breaks, with Israel Chemicals (ISCHF.PK) number two at 2.2B shekels and Check Point (CHKP) number three at 1.65B. The party could be over now, though - the publication of the figures comes amid tax hikes and spending cuts as Israel faces a large budget deficit, and Finance Minister Yair Lapid is reviewing the tax incentives.
Israel Chemicals' new CEO Stefan Borgas warns Israel's phosphate reserves are drying up and calls on the government to grant the company licenses to mine at a new site in the Negev desert that would secure reserves for 30 years. ICL is a takeover target of Potash Corp. (POT), an action Israel's new finance minister Yair Lapid says he would "vigorously" oppose.
Potash (POT -1.5%) seeks to soothe Israeli fears over a possible acquisition of Israel Chemicals, Globes says, as opponents use deal talk for political purposes in upcoming local elections. POT believes Israel Chemicals has no choice but to merge if it wants to stay relevant in the global fertilizer market in coming years.
Potash (POT) says strong consumption trends in 2012 were masked by global distributor inventory destocking, and sees 2013 world potash shipments of 55M-57M tons vs. an estimated 51M tons in 2012. POT says significant tonnage has been contracted for H1 delivery but foresees lower potash prices. Also, POT suspends talks to buy Israel Chemicals due to "political events."
Potash's (POT) proposed purchase of Israel Chemicals would give it control of ~25% of global potash production capacity, a "transformative transaction that would vault them past the Russians into the No. 1 spot globally" - which could prompt antitrust concerns. PM Netanyahu also risks being criticized during upcoming elections for selling Israel’s natural resources and jeopardizing the Dead Sea’s ecology.
More on Potash Corp (POT) / Israel Chemicals (ICL) talks: Potash has wanted to increase its stake in Israel Chemicals, which has a market cap of $15B, for a while but has met government and regulatory opposition. Any deal would include ICL's shareholders receiving stock in Potash, the Calcalist newspaper reports.