• Eng

Uralkali Ramps Up Potash Production Significantly Despite Possible Sale

Lukas I. Alpert / Wall Street Journal (US)

Russian potash producer Uralkali JSC (URKA.RS) has ramped up output significantly as part of its new strategy, a board member says, despite a possible sale of the company and the fact its chief executive remains under arrest in Belarus on charges stemming from the change in tactics.

Uralkali's departure from a trading partnership with Belarus in July ended an informal global pricing cartel and was expected to drive down prices for the fertilizer ingredient considerably, but the market has remained in limbo as buyers wait to see if the possible sale might resurrect the old sales arrangement.

But independent director Paul Ostling says the company is moving full speed ahead with its new marketing approach, and has been steadily increasing output since July.

"We are meeting our production targets, we are selling our product, we are negotiating with our customers. We are doing just fine," he said. "Our operations team is delighted because they are being told to do what they do best which is to get the stuff out of the earth."

Uralkali reported a 12% on-year jump in output in the third quarter to 2.7 million metric tons, for a total of 7.2 million tons for the year. The company has said it plans to produce 10.5 million tons for the year, up 15% from 2012.

When Uralkali announced its departure from the Belarusian Potash Co., or BPC, it said it would switch to a volume-over-price strategy to take advantage of its low-cost production. That turned the market--which had long kept prices high by limiting output--on its head. At the time, Uralkali Chief Executive Vladislav Baumgertner predicted prices would fall 25% to $300 a ton by the end of the year.

The move threatened Belarus' isolated and struggling economy, which counts on potash for a large chunk of its export revenue, and infuriated the country's President Alexander Lukashenko. In late August, Mr. Baumgertner was arrested in Minsk after meeting with the country's prime minister and charged with abusing his power as the head of BPC.

"We thought we were having a commercial dispute but that quickly converted to some bizarre geo-political situation," Mr. Ostling said.

Uralkali has dismissed the charges as politically motivated.

Mr. Lukashenko has said resolving Mr. Baumgertner's situation would require Uralkali's owners to sell and for new management to take charge. People close to Uralkali's principal owner, billionaire Suleiman Kerimov, say he and his partners are in talks to sell.

The Belarusian president has also said Mr. Baumgertner could be sent back to Russia if he were to face charges there. Prosecutors have since filed a case against him in Moscow, although analysts expect he may never serve jail time in Russia. On Monday, Mr. Lukashenko said the Uralkali executive could be released if damages were paid, although he did not specify how much. He also said he was open to collaborating with Uralkali once again if the relationship was "transparent and honest."

Mr. Ostling said it would be difficult to revive the partnership because of deep animosity on both sides, but that it wouldn't be impossible if the right agreements were reached.

"It's hard to put Humpty Dumpty back together again," he said. "There are relationship issues...but it is my job as a director to do what is best for shareholders and if a transaction was put together that made sense, we have no choice but to consider it."

Still, he said comments made by the company's competitors characterizing the disagreement as a minor spat that would soon be resolved were "naive."

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