Uralkali Sees Potash Demand at 10-Year High After Price Declines

Yuliya Fedorinova / Bloomberg (UK)

OAO Uralkali, the world’s largest potash producer, expects global demand for the soil nutrient to climb to the highest for at least a decade next year as a decline in prices ends a slowdown in sales.

“We expect that next year the global demand for potash will definitely grow, and may reach 58 million tons to 60 million tons,” Oleg Petrov, Uralkali’s chief of sales and marketing, said in interview in Moscow today. “Farmers are comfortable with the current price and they don’t expect it to fall any more.”

Potash demand was 57 million metric tons in 2011, the highest since at least 2003, according to data from Berezniki, Russia-based Uralkali. Use of the commodity, which helps farmers strengthen crop roots, will be capped at 53 million to 54 million tons this year, the company said.

Prices have declined since the start of 2012 and fell to about $320 a ton in September, the lowest for about three years.

That followed Uralkali’s withdrawal from a trading venture with Belarus on July 30 over claims partner Belaruskali was making sales outside of their marketing agreement. Belarus responded by arresting Uralkali Chief Executive Officer Vladislav Baumgertner on Aug. 26 and charging him with abuse of office. He remains in Minsk under house arrest.

Since the break up of the Belarusian Potash Co. venture, the market has become “healthier,” with prices at $320 to $330 a ton from China to Brazil, Petrov said.

‘Dumbest Thing’

The pick-up in sales suggests prices could advance next year, with any gain accelerated by potential consolidation among suppliers. Uralkali hasn’t held talks with Belaruskali on restoring their joint sales, which once accounted for 40 percent of global shipments. Uralkali has operated at full capacity since August and expects to sell 13 million tons of potash next year. Potash Corp. of Saskatchewan Inc. CEO Bill Doyle said last week that Uralkali’s decision to expand sales volumes at the expense of prices has been self-destructive and the “dumbest thing” he has seen.

“We tried hard to prevent the BPC breakup,” Petrov said in response today. “It became difficult to sustain it lately, as the whole industry rushed to fight for market share, to the detriment of both customers and shareholders. We are surprised to read comments from some people in the industry who, by their own actions, facilitated this crisis.”

Uralkali’s new strategy is working, said Petrov. “We sold about 850,000 tons of potash in September and ended up with about 900,000 tons in October.” About 200,000 tons of October’s sales were to India, with a similar amount to Brazil. Uralkali also sold about 150,000 tons in Russia and had “good volumes” to China by rail and sea.

Paralysis Gone

Uralkali is taking up an option to sell 500,000 tons of potash to China from August to the end of the year. The Russian company agreed to sell potash to India in September for $375 a metric ton, 12 percent less than a sales agreement BPC signed in February.

“This doesn’t necessarily mean that we are the only company in the world who is selling now,” he said. “Markets have recovered and are no longer paralyzed.”

Brazil purchased about 1 million tons a month during its peak period of September and October, he said. Winning sales in Brazil is a competition with suppliers from Canada, Israel and Germany, with Belarus the only major producer without market share, Petrov said.

The situation is similar for India and other markets, where Uralkali’s rivals include Canpotex, which markets the nutrient on behalf of North American producers Potash Corp., Agrium Inc and Mosaic Co.

Contract Talks

China, the biggest user of potash, is the one market to have drawn negative sentiment in the past three months from suppliers -- aside from Uralkali, he said. “The rest of the world sees problems only in China, where only Uralkali is currently shipping,” Petrov said. The Russian company has the advantage of being able to rail potash to China for sale on the country’s spot market.

Uralkali expects talks with China for 2014 long-term supply agreements to start this month. “By Jan. 1 all suppliers can achieve price agreements,” Petrov said.

Potash prices in China stabilized in September and October at about $325-$330 a ton in the spot market for immediate deliveries, Petrov said. This may become a benchmark for future contract negotiations, he said.

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