K+S Group, Kassel, Germany, on June 14 cut its EBITDA guidance for full-year 2023 due to depressed potash prices, but noted that it expects prices to recover in the second half of the year.
K+S said the “decisive factor” for the K+S earnings situation is what price level subsequently emerges worldwide following the settlement of the new China potash supply contract price at $307/mt CFR, “how quickly a recovery from this price floor occurs,” and “what volumes are demanded at the respective prices.”
Canpotex on June 6 confirmed that it had reached a potash supply contract with Chinese buyers at $307/mt CFR for shipments through Dec. 31, 2023 (GM June 9, p. 15). The price marked a 48% decline from the $590/mt CFR agreement that Canpotex concluded last year with China, and is also well below the $422/mt CFR contract inked with India in April (GM April 7, p. 14).
“A greater clarity regarding the annual results EBITDA will only arise after the movement of significant volumes in the important overseas market of Brazil,” K+S said. “In case that the Chinese potassium chloride price radiates accordingly into other markets and there is no price recovery in these markets from the levels then reached until the end of 2023, this would result in total EBITDA of about €0.8 billion (approximately $0.87 billion at current exchange rates) for K+S in 2023.”
K+S cut its full-year EBITDA guidance in May after reporting first-quarter earnings of €1.15-€1.35 billion (GM May 12, p. 27), down from the previous €1.3-€1.5 billion guidance issued in March (GM March 17, p. 24). FY2022 EBITDA came in at €2.4 billion.
The company said in its June 14 disclosure that this would also have a negative impact on adjusted free cash flow, “but to a lesser extent than for EBITDA.” K+S expects prices to recover in the second half of the year, however, which it said should result in EBITDA exceeding €0.8 billion.
The company said in the second quarter that the conclusion of the China contract and lower prices in Brazil, as well as lower sales volumes due to a wait-and-see attitude from customers, would have a negative impact on EBITDA. It reported an EBITDA for the first quarter of €453.8 million, down 13% from the same prior-year quarter.
K+S shares fell as much as 9.7% immediately following the latest EBITDA guidance cut, their lowest since November 2021. However, shares were boosted as much as 2.5% in Frankfurt on June 15 after Scotiabank raised the producer to “sector perform” from “sector underperform,” saying that the potash market has bottomed and its outlook has improved, according to Bloomberg.