Collapse of Lukashenka’s potassium business

The split-up with Uralkali will have dramatic consequences for Belarus.

Leading world’s media have reported on the disintegration of the largest potassium cartel and its consequences.

They could be compared to the domino effect, Financial Times reports.

“The decision of Russian Uralkali to withdraw from the Belarusian potassium company may decrease the price on the raw materials that it sells by 25% - down to 300 dollars per ton. If this happens, the Belaruskali, which is one of the key supplier of foreign currency in the country, will face serious problems”, - the newspaper reports.

The company’s profits have already suffered this year due to the decrease of the price on fertilizers. According to the official statistics data, in five months of 2013 the potassium exports only accounted for 1 billion dollars, which is over 10% less, than for the same period last year. This happened despite the sales growth by almost 4% - up to 2.6 million tons.

Belaruskali may also face serious difficulties in exports because it does not have its own marketing network. The Russian rival does have one – Uralkali Trading.

“This adds up to a large number of other bad news for Belarus, which still has not recovered from the financial crisis that stroke the country two year ago. The country’s authorities are desperately trying to prevent the shortening of the foreign reserves. This is a difficult task, considering that the privatization plans have got stuck, there is no new IMF loan, and the negotiations over a new loan from Russia ended up at a deadlock”, - the newspaper argues.

The disintegration of the BPC was, of course, a bad news for Belarus, which is facing another economic crisis, an international media Business New Europe reports in the meanwhile and quotes a Standart Bank’s expert Tim Ash:

“It is evident that the decrease in potassium chloride prices will have significant consequences for Belarus. Probably, it will decrease the market value of the Belaruskali company, which Lukashenka’s government perceives as a “golden goose”, - he says.

The media notes, that it is exactly the potassium exports that is one of the leverages, helping keep the country’s economy survive.

The Wall Street Journal reports that Belaruskali does not yet know how to respond to their former partner’s decision.

Both companies sold their products via the BPC for eight years. It was the most successful period for the sector, which flourished due to the rapidly increasing demand on the part of China and India: some four years ago potassium fertilizers cost almost $900 for a ton. Now the prices have gone down to $400, and after the change of the game’s rules they may further drop to below $300.

“The reaction of Uralkali’s competitors may be described as confusion. They all keep repeating the thesis of the fundamental perspectives of the demand growth, however they are not ready to assess the short-term consequences of BPC’s disintegration”, - the media reports.

We would note that the Russian company name Belarusian authorities’ underhand dealing in potassium exports as the main reason for its withdrawal from the potassium cartel. According to the agreements, it was supposed to only be carried about via the BPC, but after Lukashenka’s signing the decree number 566 in December last year, Belaruskali exported raw materials independently.

On 27 May the Belarusian ruler ordered to create a special commission, which was supposed to supervise potassium exports. It was headed by his son Viktar Lukashenka and Belarus’ KGB chief Valer Vakulchyk.

Independent experts see parallels between Belarusian authorities’ underhand dealing in potassium exports with the thinners contraband. This year a number of chemical industry branches have again multiply increased the historical sales volumes, like it had been before with oil products. At the same time some believe the official statistics data to be understated.