K+S Seeks Potash Expansion, Tie-Ups as Plants Run at Full Steam

K+S AG, Europe’s largest potash producer, is considering takeovers to access more deposits as production at existing sites approaches full capacity, said Chief Executive Officer Norbert Steiner.

Developing new reserves with partners is another option, according to Steiner, who spoke to journalists during a Nov. 19 visit to K+S’s salt facility in Bernburg, Germany. He declined to name potential partners or say how much the Kassel-based company would be willing to spend.

“We are looking at possible new mines, including acquisitions” Steiner said. “We’d also consider a project with a local partner.”

Failure to access new deposits means K+S risks having growth constrained, as demand for the crop nutrient recovers from a slump. The company’s initial plans to ally with EuroChem Mineral & Chemical Co. to develop a site in Russia fizzled out and a tender to reopen a state-owned potash mine in the east German town of Rossleben has been postponed.

Global demand for potash is set to rise by 3 percent to 5 percent annually, the company forecasts. Growth is coinciding with a reduction in capacity and a shortage of skilled workers, as K+S’s existing mines suffer declines in grades and the closing of a site in France.

Capacity for potash and magnesium is set to fall to about 7.5 million tons per year from 7.8 million tons. Even the lower level requires hiring miners and completing environmental projects to reduce wastewater emissions, measures that will require at least two years, Steiner said on Nov. 11.

Full Speed

K+S potash production will just exceed 7 million tons next year, implying a factory run rate approaching 100 percent, compared with an industry average of 85 percent, analysts said.

“K+S currently has no chance of increasing potash capacity,” Andreas Heine, an equity analyst at UniCredit in Munich, wrote in a Nov. 18 report. Faced with production constraints, he reduced his share-price target to 52 euros from 54 euros, while recommending clients “hold” K+S stock.

Analysts from Nomura, NordLB and Bankhaus Metzler have also reduced their targets since the company flagged lower capacity.

“The declining production will be an ongoing topic” and the company faces losing market share, Heine said. “This highlights the importance of new mining projects.”

K+S capacity struggles come against a backdrop of increasing production by global metal mining companies that have been attracted to the nutrient and have the funds to exploit acquired reserves.

Vale SA, the world’s biggest iron ore miner, is pumping $4.5 billion into its Rio Colorado project in Argentina, and it will be supplying the market with 11 million tons by 2017. BHP Billiton Ltd. this month abandoned a $40 billion hostile bid for Potash Corp. of Saskatchewan Inc.

EuroChem Struggles

By contrast, K+S struggled to make a partnership work with Russia’s EuroChem, owned by Andrei Melnichenko, who is also the German company’s biggest shareholder.

“EuroChem said they want to lose no more time on their project, while we would have liked to analyze the deposit more thoroughly before getting started,” Steiner said as explanation why a venture with the Russian fertilizer maker did not materialize. He said there are no talks about other projects with EuroChem.

With no scope for raising volumes, the potash price is the only driver for the shares, said analyst Heine. After pushing through three price increases to European customers this year, the next raise may come as early as January.

The average selling price for potash at K+S was 265.80 euros per metric ton in the quarter ended Sept. 30, 1 percent lower than in the second quarter. Until the first quarter, K+S had suffered declining prices for six consecutive quarters.

“We are thinking about what prices we’ll call from the beginning of January,” Steiner said, adding that recent price increases of agricultural goods were supporting potash prices.

To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net.

To contact the editors responsible for this story: Benedikt Kammel at bkammel@bloomberg.net.

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.