OAO Uralkali reported a 53 percent drop in profits for the first half ending June 30, 2013, to US$397 million, down from the year-ago $842 million. Revenues were down 28 percent, to $1.61 billion from $2.23 billion.
In releasing its results, Uralkali shed some light on its reasoning for its July 30 exit of its “price over volumes” marketing arrangement with Belarusian Potash Co. (BPC) in favor of a “volumes over price” stance. Uralkali reported that its first-half market share dropped to 17 percent from the year-ago 22 percent. It estimated that Belaruskali’s dropped to 17 percent from 19 percent, while all of the other major potash producers saw market share increases – PotashCorp/Canpotex Ltd. to 32 percent from 27 percent, SQM to 4 percent from 3 percent, and the combination of K+S Group/Israel Chemicals Ltd. (ICL) and Arab Potash Co. to 30 percent from 29 percent.
Uralkali said it lost market share in several markets, and particularly noted Brazil and Southeast Asia.
Uralkali first-half exports were off 20 percent, to 3.3 million mt from the year-ago 4.1 million mt. However, while there was only a minor drop in the first quarter, exports were off 28 percent in the second quarter, to 1.8 million mt from 2.5 million mt. Overall, first-half volumes were off 17 percent, with domestic volumes remaining stable at 1 million mt.
First-half export prices were off 17 percent, to $316/mt FCA versus the year-ago $380/mt FCA. Domestic prices were more stable at $257/mt down from $270/mt.
Uralkali said that during the first half it operated at about 70 percent of capacity. However, it said after its July 30 announcement that it has revved up production to produce at its full out 13 million mt/y rate. As a result, it now sees 2013 production at 10.5 million mt, versus 2012’s 9.4 million. It is planning on a full 13 million mt in 2014, and expects to stair-step up capacity via upgrades to 15 million mt by 2020. In 2015, it expects to make a decision whether to move forward for another 4.2 million mt, to 19.2 million mt. In addition to its capacity, it noted its logistical advantages, such as its rail route to China.
In addition to its capacity prowess, it touted its unit cash costs, saying those dropped to $58/mt in the first half versus the year-ago $60/mt. Uralkali said that the benefits of being the capacity and cost market leader have been eroded in the face of aggressive behavior by competitors. It cited erratic pricing decisions by competitors in a market where demand has been lower than expected despite high crop prices and favorable farmer economics.
Uralkali last week tried to downplay earlier comments by CEO Vladislav Baumgertner that prices could drop as low as $250/mt FOB, instead saying near-term prices are expected to be in the $300-$400/mt CFR range. However, Uralkali told analysts that while prices could drop below the $300/mt mark, that such a number would not be sustainable.
Going forward the next two years, Uralkali said it will particularly focus on fast-growing markets such as Latin America, Southeast Asia, China, and India, which have historically accounted for about 60 percent of company sales.
The potash and stock markets have been whipsawed back and forth on each news tidbit that has developed since the July 30 announcement, as well as the Aug. 26 arrest of Uralkali’s Baumgertner by the Belarus authorities. Any suggestion by Russian Prime Minister Vladimir Putin, Uralkali Chairman Alexander Voloshin, or Belarus President Alexander Lukashenko that the Uralkali/Belarus break-up may or may not be resolved has caused a knee-jerk reaction in the markets.
In a conference call, Voloshin said he never meant to suggest that Uralkali was amenable to reunification. He said he simply meant to say “Never say never.” Under the circumstances, however, he said from a practical po