POT -20% at the moment.
(BN) Uralkali Breaks Potash Cartel to Grab Market Share on Price
(1)
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BN 07/30 06:00 *URALKALI TO SHIP UP TO 500KT OF POTASH TO CHINA BY YR END
BN 07/30 06:00 *URALKALI FREEZES BUYBACK PROGRAM, DOESN'T PLAN TENDER OFFER
BN 07/30 06:00 *URALKALI SEES MARKET SHARE AT ABOUT 22% IN 2014
BN 07/30 06:00 *URALKALI TO EXTEND 1H CHINA SUPPLY DEAL, MAY CUT PRICES THIS YR
BN 07/30 06:00 *URALKALI TO SHIP UP TO 2.5MT/YR OF POTASH TO CHINA BY RAIL
BN 07/30 06:00 *URALKALI SEES STABLE REV. ON HIGHER VOLUMES
BN 07/30 06:00 *URALKALI AIMS TO BOOST OUTPUT TO 13MT IN 2014 VS 10.5MT IN 2013
BN 07/30 06:00 *URALKALI SEES POTASH PRICES FALLING BELOW $300/T AFTER BPC EXIT
BN 07/30 06:00 *URALKALI EXITS BPC VENTURE, SWITCHES SALES TO OWN TRADER
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Uralkali Breaks Potash Cartel to Grab Market Share on Price (1)
2013-07-30 14:12:16.278 GMT
(Updates with billionaires’ sales in 17th paragraph.)
By Yuliya Fedorinova
July 30 (Bloomberg) -- OAO Uralkali, the world’s largest
potash producer, upended the $20 billion-a-year industry by
ending limits on production that underpinned prices and halting
cooperation with Belarus that controlled supplies from the
former Soviet Union.
The decision sent shares of potash producers plunging as
much as 27 percent from Israel to Germany to Canada and the U.S.
as investors speculated a flood of supplies will lead to lower
prices for potash, a soil nutrient that strengthens plant
roots. Uralkali, part-owned by billionaire Suleiman Kerimov,
said it exited the venture after Belarus undermined the sales
agreements.
“Uralkali’s announcement completely turns the global
potash market upside down,” Elena Sakhnova, a VTB Capital
analyst in Moscow, said by phone. “If previously global potash
producers were acting like an oligopoly, working with the rule
that benefited higher potash prices over shipped volumes, now
the market will be fully competitive.”
Uralkali’s venture and a group comprising Potash Corp. of
Saskatchewan, Mosaic Co. and Agrium Inc. played off each other,
moderating output and exports along with demand to prevent price
swings.
Trading ‘Deadlock’
Uralkali shares fell as much as 25 percent, the most since
November 2008, and traded down 17 percent at 154.93 rubles by
5:45 p.m. in Moscow. Trading was suspended for a half hour after
shares crossed the 20 percent threshhold. K+S AG shares
plummeted as much as 27 percent, the most in 15 years, and
Israel Chemicals Ltd. fell 18 percent in Tel Aviv. Potash Corp.
and Mosaic each dropped 23 percent in New York, while Agrium
declined 8 percent.
Uralkali plans to switch exports to its own unit, Uralkali
Trading, from Belarusian Potash Co., a joint venture with
Belaruskali set up in 2005 to bolster their market position.
Cooperation reached “a deadlock” after Belarus’s government
canceled BPC’s exclusive right to export the nation’s potash and
Belaruskali exported the fertilizer ingredient on its own, the
Berezniki, Russia-based producer said in a statement.
Filipp Gritskov, a BPC spokesman, declined to comment, as
did Olga Dolgaya, a spokeswoman for the government of Belarus.
Lowest Costs
“We see the potash price may fall below $300 a ton after
the change in our trading policy,” Uralkali Chief Executive
Officer Vladislav Baumgertner said. That’s at least 25 percent
below the current contract price for China and the lowest since
January 2010. The price will remain higher than $200 a metric
ton, the production cost level for some international producers,
he said.
Uralkali, which has the lowest production costs among
international peers, will run at full capacity next year,
Baumgertner told reporters by phone. Output will rise to 13
million tons in 2014 from 10.5 million tons this year, he said.
Uralkali’s production cost is $62 a ton, compared with more than
$100 a ton for North American producers and almost $240 in
Europe, according to a company presentation in July.
Other global producers will be hurt more than Uralkali,
which will be cushioned by increasing sales volumes, Sakhnova
said. It is the only potash producer that can ship potash by
rail to China, the largest consumer of the soil nutrient, and it
may hinder Belarus’s reach into the market, she said.
China Supplies
Rail deliveries to China will reach as much as 2.5 million
tons of potash annually, Baumgertner said. Uralkali forecasts
stable revenue on increased sales volumes and will keep its
dividend policy unchanged, he said.
Uralkali will extend its first-half supply contract with
China through December, meaning it will ship as much as 500,000
tons more potash to the Asian market by the end of the year,
Baumgertner said. The price may be cut from the current $400 per
ton, he said.
China’s current spot price of $350 a ton may “to some
extent” be considered a target this year, he said.
Uralkali hadn’t planned to renew the China contract this
year, hoping to sign a new agreement in October or November at a
price no lower than the current level, according to a statement
from Baumgertner on May 29. At the time, it also cut railway
shipments by about two-thirds to get a higher price.
Uralkali has fallen 32 percent since July 19, as it wound
down a $1.6 billion buyback program after spending $1.25
billion, according to a July 22 statement. Goldman Sachs Group
Inc. cut Uralkali to hold July 24, a day before VTB Capital
reduced its rating on the stock to sell.
Billionare Sales
Anticipating the shift in trading policy will create
volatility in the share prices of all global potash producers,
including itself, Uralkali said it has frozen the buyback
program and won’t make a tender offer for its stock by the end
of the year, according to Baumgertner. Last month, Baumgertner
said that the board in November may consider more stock
purchases so that major shareholders could participate.
Billionaire Alexander Nesis sold off his 5.1 percent stake
in Uralkali, the company said July 26, two weeks after the
company completed buying out shareholder Zelimkhan Mutsoev for
$1.3 billion.
Uralkali also decided against proceeding with its
Polovodovskoye greenfield development because of the potential
changes in the potash market, Baumgertner said.
“No longer does Uralkali plan to follow a price before
volume strategy,” analysts at Liberum Capital Ltd., led by
Sophie Jourdier, said today in a note. “We expect global potash
prices to fall.”
For Related News and Information:
Billionaire Nesis Sells His Uralkali Stake After Mutsoev’s Exit
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Uralkali Considers Stock Buyback to Include Largest Owners
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Uralkali Cuts Potash Spot Sales in China to Boost Contract Price
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Top Russia stories: TOP RUS <GO>
--With assistance from Aliaksandr Kudrytski in Minsk, Belarus.
Editors: Torrey Clark, John Viljoen
To contact the reporter on this story:
Yuliya Fedorinova in Moscow at +7-495-771-7707 or
yfedorinova@bloomberg.netTo contact the editor responsible for this story:
John Viljoen at +44-20-7673-2472 or
jviljoen@bloomberg.net
