2013-07-30

Potash Follows Gold; China Slowdown Will Destroy Commodity Markets

Premarket: Potash plunges as Russia quits cartel
U.S-traded shares of Potash Corp. fell 18.2 per cent before the opening bell and shares of Mosaic Co. tumbled 17.7 per cent after Russia’s Uralkali dismantled one of the world’s largest potash partnerships by pulling out of a venture with its partner in Belarus, a move it expects will cause global prices to plunge by 25 per cent.
Shares down further now, still in pre-market trading.
The break-up of the Belarus Potash Company leaves North America’s Canpotex as the ruling potash export venture. Belarus Potash and Canpotex had accounted for 70 per cent of global trade in potash, an important ingredient for fertilizer, and the duopoly had set identical prices in key markets such as China and India. Uralkali said it was pulling out after reaching “deadlock” over sales and would export all potash via its Swiss-based Uralkali Trading. The decision may lead to a fall in the global potash price to below $300 per tonne in the second half of 2013, from the current $400 per tonne, it said.
Why is this happening? It is due to falling demand. There's less to demand to go around, so they're grabbing market share.

In the case of potash, China doesn't have massive reserves. Imagine what's going to happen to markets such as copper and nickel if China starts puking commodities onto the world market? And that decline in gold, what happens if China starts puking gold? I suspect the PBOC would soak up the gold to keep it from world markets, but investors should be prepared for a commodity market bloodbath if China hits the sell button.

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