Uralkali reported a net profit of $184 million for full-year 2015 after suffering a $631 million net loss the previous year. The return to the black was achieved despite a 12 percent drop in revenue, to $3.12 billion from $3.56 billion. The company cited weaker demand and lower potash prices in key markets, combined with a reduction in its production capacity, as impacting 2015’s revenues.
Full-year EBITDA was up 7 percent year-on-year, to $1.91 billion from $1.78 billion in 2014, while the EBITDA margin increased to 72 percent from 64 percent.
“Despite the increase in the EBITDA margin, supported by a drop in cash COGs by almost a third in U.S. dollar terms, foreign exchange losses and fair value losses on derivative financial instruments had a negative impact on the company’s net profit in 2015,” Uralkali said. Increased financing costs due to foreign exchange losses and losses from the revaluation of derivative financial instruments contributed to 2014’s net loss of $631 million.
The company produced 6 percent less potassium chloride last year, with output falling to 11.4 million mt from 12.1 million mt a year ago. Potassium chloride sales fell 9 percent to 11.2 million mt, down from 12.3 million mt. Export sales were 12 percent lower in 2015 at 9.2 million mt, down from 10.4 million mt a year earlier. The company put its global market share last year at 18 percent.
“The significant potash prices’ decline, triggered by weak demand and intense competition among suppliers, along with lower production volumes on the back of the Solikamsk accident, negatively influenced Uralkali’s sales volumes in 2015,” Uralkali CEO Dmitry Osipov said in the company’s earnings conference call April 11. But he said that rouble depreciation over the last year and growth in the export FCA potash price to $245/mt, which was up 5 percent on the back of significant shrinkage in transportation expenses in dollar terms, resulted in the 7 percent EBITDA growth last year.
Uralkali expects a weaker global market for potash this year, anticipating global demand to range between 58-60 million mt in 2016, down from its previous estimate of 59-61 million mt due to the delayed China contract, said Vladislav Lyan, head of the Uralkali Trading unit. He believes 2016 potash volumes will be heavily impacted by the timing and outcome of the Chinese potash contract. He said potash demand upside this year is also limited because of 2015 end-year excessive inventories, although he believes that demand will be more robust as 2016 progresses.
Uralkali expects the new contract with China to still come within the first half of the current year, Lyan said, adding that contractual commitments to China will “definitely take off a certain pressure from the spot market.” However, he declined to comment on the likely contract price level.
“China’s demand for potash, we believe, has begun to gradually increase, driven by NPK producers’ orders, and we also estimate the country’s potash inventory levels have dropped to approximately 4.4 million mt compared with 6 million mt at the beginning of 2016,” said Lyan.
Nevertheless, Lyan expects the elevated end-year inventories to lead to a decline in the country’s import volumes this year compared with the 9.4 million mt imported in 2015 based on China customs data, anticipating total Chinese demand in 2016 will be in the range of 13.5 to 14 million mt. Chinese deliveries in 2015 were at a record level of approximately 17 million mt, he said.
In India, Uralkali estimates full-year 2015 potash demand to have declined to 3.9 million mt, down from 4.5 million mt the previous year. Lyan said the situation is getting better with the expectation of a good monsoon season, which should lead to better potash consumption despite a largely unchanged potash subsidy for 2016/17 and a possible reduction in the maximum retail price. However, owing to the high carryover potash stocks, potash imports this year are expected to be below 2015’s level, he said, with Uralkali estimating imports of some 3.9 million mt.
In Southeast Asia markets, most of the palm oil plantations, as usual, are waiting for a clear sign from the Chinese contract, but they expect a slight improvement in potash demand this year, supported by heavy farm-out margins and a more moderated and slower pace of U.S. dollar strengthening against local currencies, according to Lyan. Uralkali estimates the region imported 9.3 million mt of potash last year, a 9 percent drop over 2014.
Uralkali expects a moderate increase in Latin American demand this year, driven by favorable crop economics, after an estimated 3-4 percent downturn to 11.3 million mt in 2015. But it warned the upside to potash demand may be limited due to lower economic growth in the region, with total regional potash demand expected to range between 11.3-11.5 million mt.
In Brazil, Lyan said there has been a clear sign of stabilization in terms of demand and prices supported by improved credit availability and a more stable Brazilian real relative to the U.S. dollar. “We saw a dramatic change in Brazilian market demand during March and April with a full order book with our local distributors and demand in May should stay active, as that month is usually an active starting point for Brazil.”
Uralkali anticipates improved potash demand in North America this year, with lower nutrient levels after an extremely weak 2015 being the catalyst, and Lyan believes this should become evident in the second quarter. The potash producer estimates North American demand contracted by 23-24 percent year-on-year in 2015, to approximately 8 million mt.
Uralkali CEO Dmitry Osipov put Uralkali’s production guidance in the range of 10.3-11.3 million mt of potash, depending on market conditions.
Company executives declined to comment on whether a de-listing of Uralkali from the Moscow Stock Exchange was likely; that decision is in the hands of Urakali’s board of directors. As a result of a recent share buyback program, the company’s “free float” has fallen below 9 percent, which is below the “free float” requirement of the Level 1 quotation list –the top tier – on the MSE.