Russia's Uralkali quit one of the world's two big potashcartels on Tuesday, heralding a price war for the key crop nutrient and pummelling the shares of companies that produce it.
The break-up of the Belarusian Potash Company (BPC), a joint venture with Belarussian partner Belaruskali, leaves North America's Canpotex as the dominantpotash export venture.
It could lead to cancellations of projects by rivals as the industry weighs the effect of lower prices, but may bring better deals for farmers.
"It is as if Saudi Arabia decided to leave OPEC - oil prices would fall immediately," saidDmitry Ryzhkov, equity sales trader at Renaissance Capital.
In negotiations with big buyers like India and China, BPC and Canpotex usually settled for deals at similar prices, and they had no qualms about turning off the supply spigot when the buyers looked likely to gain the upper hand. Together the two accounted for almost 70 percent of global potash sales.
That clubby system is now under threat after a falling out between BPC's members. Uralkali promised to bolster production and sales, even as potash prices are already in decline.
U.S.-listed shares of the Canpotex owners - Potash Corp of Saskatchewan, Mosaic Coand Agrium Inc - plummeted, cutting their market value by nearly $12 billion by early afternoon.
In the last few years, BPC and Canpotex raised potash prices well above their production cost, a senior official at a major Indian potash firm said, asking not to be identified because of the sensitivity of the matter.
"It hurt Indian companies, Indian farmers and the Indian government," the official said. "The break-up will limit their power ... Certainly this will bring down potash prices."
Uralkali is pulling out of the venture after reaching "deadlock" over sales and will export potash via its Swiss-based Uralkali Trading, chief executive Vladislav Baumgertner said.
"In the near future we expect (global) competition to become stronger - that will push prices down," Baumgertner said.
The decision to quit BPC may cut the global potash price to below $300 per tonne in the second half of 2013, from the current $400, Uralkali said. Lower fertilizer prices could mean rising demand from price-sensitive farmers in Asia.
Shares of Germany's K+S, a rival fertilizer firm, sank by 24 percent to a six-year low.
Potash Corp shares fell 19 percent, while Mosaic and Agrium lost 18 and 5 percent respectively. Agrium's fall was less steep as it is more focused on nitrogen production than potash.
Farmers would be big winners from a drop in potash prices, although grain prices are also key to their profits, said Charles Neivert, analyst at Cowen Securities.
"You've got the Brazilian season coming up and (farmers) are licking their chops on this one."
Uralkali will now look to boost sales to retain its dividend policy. It plans to boostpotash sales to 13 million tonnes in 2014 and 14 million tonnes in 2015 from 10.5 million tonnes this year by expanding market share in China, India and Brazil.
It plans to export more than 2.5 million tonnes to China this year, up from 2 million in 2012.
However, it will be harder to win business in India as companies there have already signed import deals for 4 million tonnes, said a senior official at state-run Rashtriya Chemicals and Fertilizers Ltd, declining to be named.
A new emphasis on volume by Uralkali may force Canpotex to consider the same strategy, instead of carefully matching production levels to demand.
The second-biggest Canpotex producer, Mosaic, said on Tuesday that it's too soon to change course, and it doesn't see Canpotex crumbling.
"It seems there's a feud underway between Uralkali and Belaruskali and the rest of the industry's caught up," said Mosaic Chief Financial Officer Larry Stranghoener. "We're still trying to sort out what Uralkali intends to do, which may be different from what it says it will do."
The price fall could cause new potash projects to be delayed or cancelled, Raffeisenbank analyst Konstantin Yuminov said.
Miner BHP Billiton plans the world's largest potash mine in Western Canada, with a 2017 opening date for the $14 billion Jansen mine.
BHP is expected to take a decision on the Jansen project this fiscal year. Rival industry executives have questioned the project's profitability at current price levels.
BHP declined to comment on the impact of Uralkali's move.
Uralkali said it would delay its Polovodovsky mine, which would cost an estimated $2.4 billion to build and increase its capacity by 2.5 million tonnes. Other projects cancelled or delayed include the $6 billion Rio Colorado potash project in Argentina, which Brazilian miner Vale quit this year.
The BPC news came days after Uralkali said shareholder Alexander Nesis had sold his 5 percent stake. Uralkali said it would freeze its buyback programme due to likely volatility in its stock.
Uralkali, with costs of around $60 per tonne, said global prices were likely to be kept above $200 per tonne, supported by European and North American operators that have higher costs.
Potash is the main export product for Belarus, Russia's staunchest ally among the former Soviet republics whose economy is stagnating after a financial crisis in 2011.
Belaruskali was a partner to Uralkali for eight years in BPC, which once held 43 percent of the global potash export market. Uralkali was at one point rumoured to be interested in buying a stake in Belaruskali - which now looks unlikely.
Their joint venture started to crumble this year as rumours emerged that both were selling potash outside the partnership. The two firms previously denied those rumours.
Uralkali said it pulled out because Belaruskali had made key fertilizer ingredient deliveries outside the partnership.
The decision came as a surprise for Belaruskali, said a top manager who asked not to be identified. According to Uralkali's CEO, the company had informed Belaruskaliverbally on Monday and then formally on Tuesday. Belaruskali and BPC did not comment. (Additional reporting by Zlata Garasyuta and Victoria Andreeva in Moscow, Andrei Makhovsky in Minsk, Rajendra Jadhav in New Delhi, Clara Ferreira-Marques in London, Niluksi Koswanage in Kuala Lumpur, Henrik Stolen in Oslo, and Rod Nickel in Winnipeg; Writing by Polina Devitt and Megan Davies; Editing by Timothy Heritage, Dale Hudson and Andrew Hay)