• Eng

Corporate News: Potash Firm's Chief Sticks to Strategy

Alistair MacDonald / Wall Street Journal (US)

Offering no relief to investors who fear sharply lower prices - and profits - in the $22 billion market for the fertilizer component potash, the chief executive of Russian potash miner Uralkali stood firm on the company's plans to drop out of the industry's decades-old cartel system and pursue a volume-based strategy.

Vladislav Baumgertner said Wednesday that Uralkali's move could lead to a round of consolidation in the potash sector and push some high-cost producers out of business.

Potash stocks were down again Wednesday even as analysts tried to reassure investors, saying that Uralkali might be bluffing in its split from a sales partnership with Belarussian miner Belaruskali. Mr. Baumgertner shot down that idea, saying his firm's exit from the marketing partnership, Belarusian Potash Co., or BPC, was unavoidable and that a new industry strategy of "maximum output" is needed.

"It was predictable that the collapse of BPC and rising competition would cause re-evaluation of potash assets around the globe," Mr. Baumgertner said in an interview.

Investors worry that Uralkali and its major peers will now ramp up output of a product whose capacity, some analysts estimate, already exceeds current demand by up to 20%. That would put an end to the tightly controlled price environment that BPC and the other major potash-marketing group, North America's Canpotex, had maintained by following each other's prices on bulk contracts.

On Wednesday, shares in Uralkali shed a further 8.1% and stocks of the Canpotex members were also adding to declines Tuesday that knocked some $18 billion off the market valuation of the sector. In New York, Potash Corp. of Saskatchewan Inc. closed down 8.3%, Mosaic Co. lost 2.7% and Agrium Inc. was down 1.5%. Uralkali's move caught the industry by surprise, including Belaruskali, which said in a statement that Uralkali made the decision without consulting it.

Mr. Baumgertner countered that the Belarussians had sold potash -- a potassium-based fertilizer ingredient that strengthens plant roots -- outside of BCP, making the old "price over volume" strategy impossible to pursue.

"That is why we had to formulate a new strategy which would suit best the new business environment -- which is the strategy of maximum output," he said.

The executive said that as potash prices fall, farmers in countries like India and China will demand more fertilizer. Global potash consumption will increase to 59 million or 60 million tons next year from 53 million tons in 2012, he predicted. Previous predictions of increased emerging-market demand, however, have failed to meet expectations, leading to more than three years of declines in the price of potash amid increased capacity.

Executives from the three Canpotex members kept a low profile Wednesday. The companies say population growth coupled with improving diets in emerging markets will support growth in the sector.

"The reality is, people are still growing crops, and the economics of the farm sector is still quite attractive," said a spokesman for Potash Corp.

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