Potash Corp.'s mine in Rocanville, Sask.
A reclusive Russian billionaire is attempting to create a rival to Potash Corp. , a move that could buoy fertilizer prices and consolidate control of the global potash market.
Suleiman Kerimov, an oligarch who has a seat in the upper house of Russia's parliament, wants to combine potash producers that had been split apart in the last years of the Soviet Union.
If he succeeds, his combined company would be nearly as big as Potash Corp., the world's largest producer of potash, a key fertilizer for crops such as corn. The two companies could control supply and steady prices.
But it's not yet clear whether Mr. Kerimov wants to win market share by selling larger volumes at lower prices or if his aim is to propel fertilizer prices higher with his expanded market clout.
"We don't know how they're going to act," said analyst Charles Neivert of investment bank Dahlman Rose & Co. in New York.
"Russia is always difficult to handicap, in terms of how things will go, because you don't understand all the connections, where sovereign and political issues might take precedence over economic issues."
The move to consolidate the Russian potash sector began in June, when Mr. Kerimov led an investors' group that purchased majority control of Uralkali, a London Stock Exchange-listed company that mines a potash deposit east of Moscow.
His group is now trying to secure control of Silvinit, another potash producer which mines in the same area. Mr. Kerimov already has a stake in Silvinit and reports in Russia say his moves are backed by VTB Bank, Russia's largest bank, which is controlled by the Kremlin.
Mr. Kerimov took over at Uralkali from another oligarch, Dmitry Rybolovlev, who had previously clashed with Silvinit, noted Bill Doyle, chief executive officer of Potash Corp. On a conference call with investors and analysts on July 29, Mr. Doyle said he couldn't offer insight into the machinations around Uralkali and Silvinit, but said the change in personalities might be a factor in making the merger possible.
Reports from Russia indicate the Kremlin wants Belaruskali, another potash producer, to also become part of Mr. Kerimov's potash empire.
A stake in Belaruskali has been put up for sale by the government of Belarus, Russia's neighbour. A combined Uralkali-Silvinit, with a stake in Belaruskali, would become the world's No. 1 potash producer. It and Potash Corp. would control roughly half the global market for potash.
The possible concentration of power has excited investors, who have watched potash prices plunge in the past year. Investors have pushed shares of Potash Corp. 15 per cent higher in the eight trading sessions since rumours emerged out of Moscow of Mr. Kerimov's plans.
For years, Potash Corp. tightly controlled global supply and prices hovered around $200 (U.S.) a tonne. In 2007, prices began to rise and in 2008, amid global food shortages, the price spiked to near $1,000, before promptly crashing to around $300 in 2009 when demand evaporated as the recession prompted farmers to do without the expensive fertilizer.
As the price of potash has recovered slightly towards the $375 level, the long-time dominance of a few big producers seemed to be fading, with major miners BHP Billiton of Australia and Vale of Brazil poised to become large producers this decade.
Consolidation in Russia is "a plus for prices," said Patricia Mohr, a commodity market specialist with the Bank of Nova Scotia.
"It doesn't mean they jack up prices but they do have greater control over the market, rather than the market becoming less concentrated, which is what many analysts have been assuming," said Ms. Mohr.
Mr. Kerimov has a fortune valued at $5.5-billion, according to Forbes magazine, which puts him at No. 136 on its list of the world's richest.
The little-seen businessman was a deputy in the Russian Duma, the country's lower house of parliament, beginning in 1999, and joined the upper house in 2008. In that time, there is no record of him making speeches or casting votes, according to veteran Russia business correspondent John Helmer.
In the fall of 2006, he was nearly killed when he crashed his Ferrari in Nice, France.
Even if Mr. Kerimov and Uralkali do not score a part of Belaruskali, winning Silvinit would bring the company into the fold of an export cartel that Uralkali and Belaruskali already operate, similar to the Canpotex export cartel Potash Corp. runs with Mosaic and Agrium.
In early 2009, when prices were already falling, Silvinit took a lower price on an export contract with India that sent prices hurtling down even faster.