"“We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.” "

Chinese premier Wen Jiabao 12th March 2009

""We have a financial system that is run by private shareholders, managed by private institutions, and we'd like to do our best to preserve that system."

Timothy Geithner US Secretary of the Treasury, previously President of the Federal Reserve Bank of New York.1/3/2009

Thursday, May 29, 2008

Global cartels force Potash and Phosphate fertiliser prices to record levels

The Webb-Pomerene Act 40 Stat. 517 (1918), 15 U.S.C. 62 enacted in 1918 was a litle known result of WW1 that exempts associations of U.S. firms engaged in export trade from U.S.antitrust laws, so long as they do not restrain any U.S. competitor of the association . The stated intentions were to, "to aid and encourage our manufacturers and producers to extend our foreign trade," without significantly injuring American consumers - No act done by the export association could be "in restraint of trade within the United States." Congress anticipated in the post war world an eager American business community taking advantage of the opportunity to pool its facilities, resources, and expertise in launching an ambitious joint exporting program.

In a fascinating insight into the legislators minds of the time promoters of the bill Senator Atlee Pomerene (Ohio) said bluntly, "[W]e have not reached that high plane of business morals which will permit us to extend the same privileges to the peoples of the earth outside of the United States that we extend to those within the United States." 55 Cong. Rec. 2787 (1917). Congressman Webb declared, "I would be willing that there should be a combination between anybody or anything for the purpose of capturing the trade of the world, if they do not punish the people of the United States in doing it." 55 Cong. Rec. 3580 (1917).

This Act lay undisturbed by the Courts until 1968 when the US Government claimed that the Phosphate Association in exporting products to South Korea , payed for by The Agency for International Development (AID) (Now USAID) and sued them for contravention of the Anti-Trust Sherman Act and sought relief. They won their case but then lost on Appeal in the Supreme Court U.S. v. Phosphate Export Assn., 393 U.S. 199 (1968). The Phosphate manufacturers operate in world markets, so their prices are dictated by world markets and they may operate in those markets as they wish. And they do.

This curious and arcane piece of legislation is now the focus of some attention as the price of fertiliser for US farmers ( never mind those lesser breeds peoples of the earth outside of the United States who also buy fertilisers) has soared, yielding margins for suppliers "beyond the dreams of avarice".

There are two principal mineral components of modern agricultural fertilisers ( we have dealt the urea based fertilisers produced from natural gas here previously Wednesday, June 20, 2007
US swapping oil security for fertiliser insecurity and higher farm and food costs ) phosphate and potash. Phosphate sold at some US$365 a ton last year and this year around US$1,000, and Potash is selling at similiar prices. demand is growing rapidly for example the IFA and Fertecon have estimated that within the next 6-8 years the demand for potash fertilizer will be growing 3-4% by the year, while certain states, including China, India and Brazil may see it grow by as much as 5%. This is on top of growth 1999 - 2006 of global demand for Potassium chloride rise 24.8%.

The price rises are not accidental, there is an effective international cartel comprising the US based Phosphate Chemical Association , the Canadian Canpotex (protected by an exemption in Canadas Competition Law) and the Russian Belarus Potash Company (BPC).

US based companies such as Minnesota based Mosaic (Cargill has a controlling take) , the Canadian company Agrium, the Potash Company of Saskatchewan happily operate within this cosy marketing arrangement, see also post on Thursday, January 10, 2008 In the fertiliser

The way they operate is none too subtle , On the BPC website there is a notice ..

"April 22, 2008 Minsk Belarusian Potash Company (BPC), a leading world potash supplier and
the sole exporter of potash fertilizers produced by RUE PA Belaruskali (Soligorsk, Belarus) and JSC Uralkali (Berezniki, Russia), informs of the new price increase up to US$1000 per tone (pt) of MOP (potassium chloride ) in spot markets. The price for Belarus- and Russian-made potash fertilizers will be raised to US$ 1000 pt in the South Asian market. This price comes into effect from July 1, 2008. The price for the Brazilian market is effective from July 1, 2008, as well, and will amount to USD 1000 and USD 1010 pt for major and minor importers respectively. "

For example Consultants Fertecon maintain an index of fertliser prices

It was only on the 20th of May that President Thorleif Enger addressed the 76th Annual Conference of the International Fertilizer Industry Association (IFA) , besides stressing the importance of the fertiliser manufacturers to world agriculture and feeding the poor he replied to those , "Observers of the industry ... questioning the current high level of fertilizer prices. They want to know why prices have increased so rapidly and if they are justified". He had a ready answer, “Current fertilizer prices are an illustration of the basic principles of supply and demand. They reflect a properly functioning, but very tight, global market.”

It is interesting therefore to note that the Potash Corporation of Saskatchewan (incorporating Sinofert Holdings Limited ("Sinofert") ,Arab Potash Company Limited ("APC") and Sociedad Quimica y Minera de Chile ("SQM") )reported sales in Q1 08 at C$1.89 Bn compared with Q1 07 of C$1.1 Bn, a rise of 70% providing a fully diluted income per share up from C$62 cents last year to C$1.74 this year as the Chairman was happy to point out a rise of 181%.

Production of Potash was 2.5 million tonnes compared to 2.3 million tonnes (up 8%) in first-quarter 2007 and the gross margin on sales was triple that of Q1 '07.

Offshore prices doubled as price increases in major markets were announced through 2007 and first-quarter 2008. Canpotex Limited ("Canpotex"), the offshore marketing company for Saskatchewan potash producers, implemented price increases in Brazil that totaled $150 per tonne, and effective June 1, 2008 the price will increase to $750 per tonne. In India, etc., etc., ...

Mosaic were happy to announce on April 16th under the name of Jim Prokopanko, their President and Chief Executive Officer that Canpotex Limited, had agreed a potash supply agreement with Sinofert in China for the remainder of calendar 2008. The new contract calls for shipment of one million tonnes of potash, FOB Vancouver, at a US$400 per tonne increase over the price in 2007.

This followed an announcement on March 27 that Canpotex Limited, agreed to supply 1.3 million metric tonnes of potash to its key Indian customers at $625 per metric tonne CFR. This represents a volume increase of 350,000 metric tonnes and a price increase of US$355 per metric tonne from the prior year contract (ie a rise of 76%) . Shipments will occur during the period between May 2008 and March 2009.

On 4th April Mosaic reported record results and significantly an average diammonium phosphate (DAP) price of US$487 per tonne, a US$241 per tonne increase compared with a year ago and a US$70 per tonne increase compared with the second quarter of fiscal 2008. (qv prices above to China and India).For the nine months ended February 29, 2008, net sales were US$6.3 billion, an increase of 55% compared with the previous year.

Net sales in the third quarter of fiscal 2008 were $2.1 billion, an increase of US$868.5 million, or 68% compared with the same period a year ago. Mosaic's gross margin for the fiscal 2008 third quarter was US$727.9 million, or 33.9% of net sales, compared with US$113.1 million, or 8.8% of net sales, a year ago - up a staggering 650%. Value of Phosphate sales was up 80% and Potash 60%.

Mosaic's realized DAP price, FOB plant, for the fourth quarter of fiscal 2008 is estimated to be $710 to $730 per tonne.

As Senator Pomerane said 90 years ago ...""[W]e have not reached that high plane of business morals which will permit us to extend the same privileges to the peoples of the earth outside of the United States that we extend to those within the United States."

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