Posts Tagged ‘cartel’

BHP Billiton and Rio Tinto growing in potash

October 6, 2011 Comments off

“Rio Tinto, the Anglo-Australian mining group, is re-entering the potash business through a joint venture with a Russian fertiliser producer which holds extensive exploration permits in the Canadian province of Saskatchewan.

Rio will initially acquire a 40 per cent stake in nine blocks covering an area of 241,000 hectares currently held by North Atlantic Potash, a subsidiary of Russia’s JSC Acron. Under the deal, Rio can eventually raise its stake as high as 80 per cent.”

Source: Financial Times, September 28 2011

“Mining heavyweight BHP Billiton is “aggressively” pursuing potash projects in Saskatchewan along with its Jansen asset, the company said on Wednesday.

“Although these are at an early stage, the data acquired suggests they have the ability to support significant potential developments,” spokesperson Ruban Yogarajah said, adding that the combined properties could “at least” match Jansen’s planned output of eight-million tons a year.

BHP Billiton in June said it approved a further $488-million to develop Jansen, bringing its total investment in the project to $1.2-billion.”

Source: Mining Weekly, September 29 2011


  • Approx. 33mln tons of potash are mined annually, with Canada accounting for approx. 30% of global production. With price per ton of around $400-$500 the global market totals $13-17bln annually.
  • Both BHP Billiton and Rio Tinto are planning to move or expand in the Potash industry. BHP Billiton already is operating in Saskatchewan and tried to make a big move by taking over PotashCorp last year. Rio Tinto sold its potash exploration projects in 2009, but tries to re-enter in a JV with a small Russian player.


  • The potash market it currently dominated by 2 marketing ‘cartels’: Canpotex (PotashCorp, Mosaic, Agrium) and BPC (Belarusian Potash Company: Silvinit & Uralkali), which control close to three quarters of global sales and typically copy each others pricing agreements with large customers. The rise of the large diversified players in the business (apart from BHP and Rio, Vale is also building its potash business) could break the power of these cartels and might move the market to pricing based more on spot prices.
  • From a technology and production standpoint it makes a lot of sense to have diversified mining companies, specialized in running large scale extraction projects, operate potash mines. Only on the marketing and sales side of the business synergies will be hard to realize, but companies like BHP and Rio Tinto have the experience and size required to set up a strong marketing presence.

©2011 | Wilfred Visser |

BHP faces potash cartel backlash

August 27, 2010 Comments off

“Mosaic and Agrium, the partners of PotashCorp in Canada’s fertiliser cartel, have launched a campaign defending the industry’s pricing and marketing arrangements in a move that could impede BHP Billiton’s $39bn takeover bid for PotashCorp.

BHP has signalled it plans to use infrastructure such as port and rail facilities that belong to Canpotex, the cartel that comprises PotashCorp, US-based Mosaic and Agrium of Canada. “

Source: Financial Times, August 26, 2010


  • The fertiliser cartel, which controls 70% of the global market in cooperation with the Russian cartel and PhosChem, is currently regulating supply in order to keep stable, high prices.
  • BHP is planning to operate PotashCorp’s mines at full capacity and has also indicated it wants to move the fertiliser market to a day-based pricing system.


  • BHP will have to play according to the rules of the cartel at least in the first years after the acquisition (if it succeeds). The cartel shares logistical assets that are crucial for the Saskatchewan operations to operate at low costs. Breaking the rules of the game would seriously impede BHP’s access to these assets.
  • BHP’s incentive to break the rules of the game are grounded in the production cost curve. Lowering the global price would force many small operators (including Vale) out of business.
  • The move of BHP into the phosphate business will force the high cost suppliers to lower cost. This is the main reason various players are trying to prevent the acquisition from happening.

©2010 | Wilfred Visser |

Vale denies iron ore price fixing accusations

June 2, 2010 Comments off

“Vale, the Brazilian iron ore miner, yesterday defended itself against Chinese accusations that its iron ore prices are too high, saying that supply and demand are fixing prices, not the big iron ore miners.

Roger Agnelli, Vale chief executive, told a press conference in Shanghai: ‘Vale is not fixing prices: who is fixing the prices is the market.

Steelmakers and Chinese officials have repeatedly complained about the concentration of power in the world iron ore market in the hands of three big producers, which also include Rio Tinto and BHP Billiton.

The dispute has ramifications for the global economy as iron ore prices feed through to steel prices, impacting the price of every-day goods.

Steelmakers were forced to accept a 90-100 per cent increase in iron ore prices in the second quarter after the annual benchmark system of pricing broke down.”

Source: Financial Times, June 2 2010


  • Vale, Rio Tinto and BHP Billiton produce approx. 2/3 of exported (seaborne) iron ore. Vale is the largest of the 3 with 28% (240 m tonnes) of total exports.
  • Demand for iron ore is rather inelastic to price changes. Steel makers are generally willing and able to pass on price increases to end consumers.


  • Due to the nature of the iron ore industry (homogeneous product, oligopolistic structure, strong ties among players) the threat of cartel forming is ever present. BHP Billiton, Rio Tinto and Vale will therefore need to be very carefull in their actions and will always need to be prepared to explain what they are doing.
  • Not only explicit price fixing (price levels agreed among producers), but also implicit price fixing (producers all understand it is in their best interest to keep price levels high and act on it) is punishable. It is certainly possible that a competition authority will find the iron ore producers guilty of implicit cartel forming.

©2010 –

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