Uralkali expects new contract with China no sooner than Q4, negotiations to be difficult

Interfax /

MOSCOW. July 15 (Interfax) — Uralkali (MOEX: URKA) expects negotiations with China over a new contract to begin no sooner than Q4, the sales and marketing director for the Russian potash miner, Oleg Petrov, told Interfax.

“I don’t expect negotiations any sooner than the fourth quarter, and the price in other markets, like Asia and Brazil, will be important for the success of the negotiations. I don’t think the negotiations will be easy,” he said.

In Brazil the ability of producers to increase prices at present is limited by the actions of the Belarusian Potash Company (BPC, trader for Belaruskali), Petrov said. Earlier he said that in the first half of the year potash prices went down about $30 per tonne to $325 per tonne because of the decrease in volumes in fertilizer applications and deliveries from Belarus.

“Having a presence on the market every day, we see that BPC sells its products at much lower prices than they declare. The July 1 price increases in Brazil by $25 per tonne completely fell through because BPC quietly continued to sell their product at old prices during the Brazilian peak demand season. This may give the Belarusian producer a little extra volume in the short term, but in the end it will inevitably lead to greater competition, lower prices and, possibly, even more stagnant demand. We sold an insignificant amount in July, and our products are now heading for the warehouse,” Petrov said.

He also said that consumer demand in Brazil for fertilizers, and in particular for potash in 2015, would fall 7-10%. “Potash producers are not able to avoid the decline in exports to the Brazilian market.” In his opinion the main beneficiaries of this situation are North American producers who have consolidated 40% of Brazilian distribution.

“Uralkali will not lose its market position, having invested in warehouse infrastructure in Brazil,” he said. And Petrov thinks that Belaruskali risks losing its position in this market “in volumes and in revenue, without having enough sales channels.”

In January-May, Brazil decreased import volumes of potassium chloride by 30% due to high levels of warehouse inventory, limited availability of credit and lower prices for soy crops at the beginning of the year. Uralkali earlier said that it expects an increase in demand in this market in the second half of the year.

Uralkali Trading S.A closed a contract in April for deliveries to China in 2015 for 850,000 tonnes of potash at $315 per tonne on CFR terms. The volume of the option under the contract was not made public. The buyer is a consortium comprising Sinochem, CNAMPGC, and CNOOC. The timeline for deliveries is from April to December this year.

Uralkali has traditionally been the first supplier to sign agreements with Chinese importers. However, this year BPC signed the first contract, agreeing a $10 rise compared to the 2014 price of $315 per tonne. Uralkali pointed out that the price reached by BPC in the Chinese market was significantly below expectations. Uralkali and Canpotex (trader for North American producers Potash Corp., Agrium and Mosaic) had been negotiating a price in the range of $330-335 per tonne.

Uralkali does not plan to supply significant optional volumes of potash to China in 2015, and will also decrease rail shipments compared to historical levels (rail deliveries will not exceed 1.3-1.4 million tonnes), said Oleg Petrov previously.

Demand in China this year is expected to rise slightly compared to 2014 levels and reach 14.5-14.7 million tonnes.

Uralkali to start expanding granulation capacity in 2016

MOSCOW. July 16 (Interfax) — Uralkali (MOEX: URKA) will begin expanding granulation capacity in 2016 and by 2019 granulated potash will amount to half of the company’s product portfolio, the Russian potash giant’s director for sales and marketing, Oleg Petrov, told Interfax.

He said Uralkali is maintaining granulated potash production this year despite the flooding at its Solikamsk-2 mine.

“Expansion of granulation capacity will begin next year and within three years the company will achieve a substantial volume of production of this type of product. Granulate will account for about half [of total production],” Petrov said.

This will require investment in the “hundreds of millions of dollars,” he added.

Granulate currently makes up about 30% of Uralkali’s production, analysts estimate. Granulated potash is a premium product that usually sells for about $15 per tonne more than other types of potash fertilizer. Granulation slows the dissolution of nutrients in the soil, extending the life of the fertilizer.

There was an unusual situation with granulate in 2014 due to a surge in demand in Brazil and the United States and technical and logistical problems experienced by a number of producers in Germany, Israel and Canada, Petrov said.

“Due to low prices at the beginning of the year, as well as the favourable situation for agricultural products in the Western hemisphere, prices in the United States and Brazil rose significantly. Asian prices remained at a low level. As a result, at the peak in demand the difference between prices for granulated and regular product amounted to $80-$100,” Petrov said.

Uralkali exports granulate to Brazil, the U.S., Europe, the Middle East and Africa. However, shipping granulated potash to markets such as India is not economically justified.

“Granulated potash is a premium product. It costs more to produce so it has to be sold at a higher price. For example, a producer says they are willing to supply granulated potash to India. One needs to remember that the Indian market is subsidized, and a product gets a subsidy based on nutrient content, in other words the price of potash in India does not depend on the physical form — powder or granulate,” Petrov said.

Uralkali said in its 2014 annual report that in order to expand granulation capacity it will replace obsolete production equipment and design a new granulation division at the plant at its Solikamsk-3 mining division.

Granulated potash generated 33% of Uralkali’s export revenue in 2014.

Uralkali optimizing geography of sales given reduced capacity

MOSCOW. July 16 (Interfax) — Uralkali (MOEX: URKA), faced with reduced capacity and limited possibilities for raising potash prices, is optimizing sales with a focus on high-margin markets, the Russian potash giant’s director for sales and marketing, Oleg Petrov, told Interfax.

“Our objective is to generate maximum profit for shareholders, which in conditions of limited volumes means optimizing sales. This means either raising prices or moving, as much as possible, to higher margin markets. As for prices, naturally we’d be happy to use any good market situation to raise prices. Unfortunately, given the current policy of [Belarusian rival] Belaruskali, this is not possible,” Petrov said.

He said Uralkali is maintaining shipments to Brazil, the United States and Europe and increasing shipments to Latin America, while somewhat reducing exports to China and Southeast Asia, “where the price has been hammered by other producers.”

He said market share remains a strategic factor for the company. Uralkali had a 20% share of the world market in 2014, he estimates.

“We have always favoured price in the price or volume debate. The change in the company’s strategy in 2013 was a necessary, forced measure to restore our long-term positions and stimulate growth in demand in the market. The strategic goals were achieved,” Petrov said.

He said Uralkali is currently working hard on a number of projects to develop distribution in key markets.

In addition, in order to optimize costs, Uralkali is working on reducing container shipments of fertilizer. “We’ve been reducing container shipments since 2014. This year we plan to reduce container shipments by at least half compared to last year. There are still small niches for containers in Southeast Asia and Latin America, but even there it is possible to deliver by ship,” Petrov said.

He confirmed that container shipments have been economically inefficient for the past two years. Due to the steep drop in rates for marine shipments, shipping tonnes of product in containers costs $10-$15 more than by shipping by marine vessels even without factoring in expensive handling.

“In a competitive market, this is quite a lot of money. It’s hard to say what’s currently making some producers increase container shipment volumes,” Petrov said.

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