EuroChem Positive on Potash Amid Uralkali-Belarus Dispute

OAO EuroChem, the Russian fertilizer maker controlled by billionaire Andrey Melnichenko, said its planned potash mines remain viable even as the collapse of OAO Uralkali’s partnership with Belarus sends prices lower.

“Uralkali’s trading-venture feud won’t hurt the economics of our potash projects,” Andrey Ilyin, EuroChem’s chief financial officer, said in an interview in Moscow yesterday. The company intends to go from having zero potash output to 8 million metric tons a year within a decade, about 60 percent of the current capacity at Uralkali, the world’s biggest producer.

Uralkali plunged the $20 billion global market for the soil nutrient into turmoil at the end of July by ending a marketing venture that accounted for 40 percent of worldwide potash exports. The Russian company said Belarus was selling cargoes outside of their agreement and said it would increase production to pursue market share, sending shares of rival fertilizer producers tumbling.

The price of potash for immediate delivery in China, the biggest consumer, has dropped to $325 a ton in September from $345 in July, according to Uralkali. That decline won’t deter EuroChem from developing its two projects in the Volgograd and Perm regions, Ilyin said.

Photographer: Andrey Rudakov/Bloomberg

Uralkali plunged the $20 billion global market for the soil nutrient into turmoil at the end of July by ending a marketing venture that accounted for 40 percent of worldwide potash exports. Close

Uralkali plunged the $20 billion global market for the soil nutrient into turmoil at... Read More

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Photographer: Andrey Rudakov/Bloomberg

Uralkali plunged the $20 billion global market for the soil nutrient into turmoil at the end of July by ending a marketing venture that accounted for 40 percent of worldwide potash exports.

“Both can withstand a global potash price of $300 a ton, and even below $250 a ton,” he said. “We still plan to commission both potash plants in 2017.” The company is working to arrange $750 million of financing for its Usolskiy project in the Perm region, and plans to complete this in December or January, Ilyin said.

Potash Entry

EuroChem plans to start selling potash on the global market only in 2019, once the Moscow-based company’s production has expanded, Ilyin said. About 2 million tons of the initial potash output will be processed into complex fertilizers and other potassium-containing products at EuroChem’s plants, he said.

Uralkali and Belarus are likely to reconcile and revive their trading partnership, Ilyin said. “There is a small number of potash players globally, and gravitation will continue to pull them together,” he said. “It is possible therefore that at some stage Uralkali and Belaruskali will re-join their marketing effort, as it seems to be of mutual benefit.”

Asked if EuroChem would be interested in buying a stake in Uralkali, Ilyin said that while his company doesn’t rule out any deals, mergers and acquisitions by the closely held fertilizer producer are at least about four years away.

“Any merger would only be possible after EuroChem unlocks its market value by successfully starting its own potash production, which is currently planned for 2017,” Ilyin said.

Louisiana Plant

Belarus President Aleksandr Lukashenko has said that a change in Uralkali ownership is a prerequisite for a resumption of its potash marketing partnership with Belarus.

Aside from planning its entry to potash production, EuroChem also plans to build a $1.5 billion ammonia and urea plant in Louisiana, it said in July. The company may seek U.S. partners for the project, which is made more attractive by falling American raw-material costs, Ilyin said.

The U.S. “is the world’s largest agricultural market in terms of fertilizer consumption with currently low gas prices of about $100 per 1,000 cubic meters (35,315 cubic feet), which is below the prices in Russia,” he said.

EuroChem has a similar project planned for Russia, its proposed $1 billion ammonia plant at Kingisepp, in the Leningrad region. EuroChem has developed a shortfall of the fertilizer feedstock since acquiring an Antwerp production plant from BASF SE (BAS) last year for 830 million euros ($1.1 billion), Ilyin said.

Needs Gas

While EuroChem requires more gas for its projects than it can supply, the company isn’t seeking self-sufficiency in this raw material given relatively low prices, Ilyin said. “Our gas subsidiary covers over 20 percent of our needs.

‘‘Today, we do not believe that domestic gas prices will rise above $150 per 1,000 cubic meters, given growing competition among producers and the new international realities, such as the shale-gas revolution in the U.S,’’ he said. The company is looking at ideas for cooperation with oil and gas producers, both in Russia and in ‘‘more exotic markets’’ such as Iraq, he said.

To contact the reporters on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net; Yuliya Fedorinova in Moscow at yfedorinova@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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