The Belarus government has arrested the CEO of a major Russian potash producer, escalating tensions between the former members of a global cartel for the fertilizer.
Uralkali, the Russian potash company, recently pulled out of a joint marketing partnership with Belaruskali, its state-owned Belarusian counterpart.
The Russian firm accused Belaruskali of circumventing the marketing venture by making outside deals with buyers.
The Belarusian government recently invited Uralkali's CEO, Vladislav Baumgartner, to negotiations but then arrested him Aug. 26 at the airport in Minsk, Belarus, shortly after he met with the country's prime minister, according to the Russian state news agency RIA Novosti.
Belarusian officials said Baumgartner was being detained while they investigated him for alleged abuses of power for "lucrative purposes" that caused $100 million in economic damages, said RIA Novosti.
Alexander Voloshin, chairman of Uralkali, called the accusations "simply absurd," saying that Baumgartner served in an advisory capacity to the joint marketing venture and had no real authority to abuse.
"The related allegations contradict common sense and would not stand up to scrutiny," Voloshin said in a statement.
Global potash buyers are standing on the sidelines, withholding purchases while waiting to see how the unfolding drama will impact prices for the fertilizer, said David Asbridge, president of the NPK Fertilizer Advisory Service.
"It's turning into a real soap opera," Asbridge said.
Belarusian authorities may see the detention of Baumgartner as a strong-arm negotiating tactic aimed at reuniting the joint venture, but the move seems likely to backfire, he said.
"That's not going to help the relationship any," Asbridge said. "It just seems too heavy-handed for that to happen."
Canadian potash producers have been pushing for their Russian and Belarusian counterparts to get back together, he said. While that possibility isn't entirely off the table, it's taken a big hit due to the arrest.
"I think that pretty well shot that in the foot," Asbridge said.
Potash buyers were already hesitant to commit to purchases when the joint marketing venture fell apart, as the lack of coordination raised the possibility of price declines, he said.
The recent escalation in tensions has led to further reluctance, Asbridge said. "The whole situation puts people off the market. There's no way anybody is going to do anything because the price of potash could drop."
The strength of the U.S. dollar — the predominant currency in fertilizer trade — against the currencies of India and Brazil have also kept those countries out of the potash market, he said. A more valuable dollar basically makes potash more expensive for buyers in those nations.
The wholesale price of potash is currently about $400 per metric ton, but Asbridge said the price will likely fall to $375 per metric ton by winter.
Uralkali has said it expected potash prices to fall to $300 per ton, but that was likely just an attempt to strike fear in Belaruskali, he said.