07/30/2013 09:24 EDT | Updated 09/29/2013 05:12 EDT

Potash stock prices slump as Russians flood market

Shares of major North American potash producers fell sharply Tuesday on word that a Russian company is pulling out of a marketing group and was expected to undercut its competitors' prices for the fertilizer.

OAO Uralkali announced late Monday it was withdrawing from a joint venture with another company from Belarus that set the price for about 40 per cent of the world's potash supply. Instead, it plans to sell more potash to China, which buys about one fifth of the world's supply of the fertilizer.

Uralkali has a much lower cost of production than rival PotashCorp of Saskatchewan, which was briefly Canada's most valuable company in 2010 before the government stepped in and blocked a $40 billion takeover offer from Australian mining giant BHP Billiton.

"Uralkali’s announcement completely turns the global potash market upside down," analyst Elena Sakhnova of VTB Capital in Moscow told Bloomberg.

"If previously global potash producers were acting like an oligopoly, working with the rule that benefited higher potash prices … now the market will be fully competitive."

Saskatchewan as a whole has the world's largest reserves of potash, with PotashCorp holding the lion's share of that. Canadian potash companies typically sell through a similar venture known as Canpotex, which is able effectively to set prices because of its size.

Shares in Canada's major potash companies sold off heavily Tuesday in reaction to the news. At one point, PotashCorp plunged almost 25 per cent to $28.70 US in premarket trading in New York. Mosaic fell $13.11 or 24.64 per cent to $40.10, and Agrium was down $11.93 or 13.05 per cent to $79.50.

With the selloff, PotashCorp has now lost more than 50 per cent of its value since the BHP Billiton takeover was blocked in 2010.