Potash cartel breakup raises economic growth concerns

Potash production represents about 1.5% of Canadian goods exports.

TORONTO – The Canadian dollar closed lower Tuesday amid questions over how a major change in marketing fertilizer will impact Canadian economic growth.

The loonie was down 0.4 of a cent to 97.07 cents US after a Russian-based rival to Potash Corp. and other North American producers broke up a European marketing group that controls about 43% of global exports.

Russia’s OAO Uralkali plans to run at full capacity after changing its trading policy in a move that signals potash prices will weaken considerably.

Chief executive officer Vladislav Baumgertner said that the change in the company’s trading policy could drag potash prices to less than US$300 a ton, which is at least 25% below the current contract price for China.

CIBC World Markets chief economist Avery Shenfeld noted that “potash production is a bit under a half per cent of Canadian gross domestic product, and represents about 1.5% of Canadian goods exports.”

“A drop of 25% in volumes in the third quarter (is) not unreasonable, and it could in fact be 30 to 40%, associated with production being curtailed as buyers sit and wait for lower prices,” he added.

Statistics Canada releases its reading on May economic growth on Wednesday. Economists predict gross domestic product will have grown by 0.3% during the month.

©The Canadian Press