While Uralkali posted a 68 percent rise in first-half net profit to $935 million, up from the year-ago $556 million, it reported big declines in revenue and EBITDA. Profits were buoyed by foreign exchange gain and fair value of swaps’ revaluation amounting to $729 million, but revenue fell 31 percent to $1,075 million, down from $1,562 million. Six-month EBITDA came in 35 percent lower at $611 million, compared with the year-ago $933 million.
“Changes in market conditions and subdued potash demand across global markets weighed heavily on the first-half company results,” said Dmitry Osipov, Uralkali CEO. “We continue to work on internal efficiency to neutralize the influence of negative market progression and the strengthening of the Russian rouble, but considering the current level of our cost price, the potential of these measures is limited.”
Uralkali saw first-half production fall 10 percent, to 5.1 million mt from the year-ago 5.7 million mt. Sales volumes were down 13 percent, to 4.9 million mt from 5.6 million mt. The sales decline was partially offset by a 7 percent year-on-year increase in domestic sales to 1.1 million mt. Six-month exports fell 17 percent, to 3.8 million mt from 4.6 million mt a year-ago.
The average first-half FCA export price decreased by 22 percent year-on-year, to $188/mt from the year-ago $242/mt.
“Prolonged negotiations with Chinese and Indian buyers, global destockings during the first quarter, and intense competition put pressure on potash volumes and prices. And significant demand improvements in Brazil and North America haven’t fully offset challenges in Asian markets,” said Alexander Terletskiy, Uralkali Trading’s recently appointed CEO.
With the Chinese and Indian potash contracts finally settled, Uralkali expects potash demand to gradually stabilize in the second half of 2016. Clarity regarding China is expected to encourage customers to step into the market more actively, and the company estimates global demand will be around 30 million in the second half of this year compared with an estimated 28-29 million mt in the first six months.
“The current quite stable level of demand in Latin America, EMEA, and North America may not fully offset the challenges in Asia for this year,” said Terletskiy. “That’s why we expect global potash demand to be down to 59 million mt this year from 61 million mt in 2015.”
Shipments to both China and India are expected to accelerate through the remainder of the year to fill existing supply contracts. Uralkali was one of the last suppliers to settle new supply contracts in these markets (see Markets, Potash).
“Shipments to China have started under the new contracts, and usually the last quarter of the year is the start of the major consumption in the region. We don’t expect any significant increase in inventories by the end of the year,” said Terletskiy. The company expects China’s potash imports this year will be 32-37 percent lower than in 2015, with total deliveries anticipated to reach around 14.0 million mt, down from 16.7 million tons in 2015.
While the good monsoon season could lead to incremental demand in India in the second half of 2016, overall import volumes may end up lower in calendar year 2016 compared to 2015, given the extremely weak potash imports in the first seven months, Terletskiy said. Indian customs data show India imported 1.5 million mt of potash between January and end-July, a 37 percent year-on-year decrease. The company anticipates imports will be around 3.5 million in calendar 2016, down from last year’s 3.9 million mt.
In Southeast Asian markets, after slower first-half year-on-year imports, Uralkali expects full-year demand to fall below that of 2015 due to adverse weather conditions in the first six months, and the delayed China contract.
Uralkali said Latin American potash shipments have remained stable since the second quarter with potash shipments to Brazil remaining at “an acceptable level.” Brazil’s first-half potash imports were up 5 percent year-on-year at 3.9 million mt.
“We don’t expect any significant changes in consumption and pricing through quarters three or four,” Terletskiy said. The company expects full-year demand in the Latin American region to be around 11.6 million mt.
Potash deliveries in the North American market are expected to remain even, at least through the autumn season. Full-year demand is expected to increase to 8.5 million mt.
Uralkali now expects to produce 10.6 million to 10.8 million mt of potash in 2016 due to the lower-than-expected first-half output. In June, the company put its production guidance for the year at 10.8 million to 11.2 million mt (GM June 24, p .14).