OAO Uralkali tumbled the most in more than four years as the world’s biggest potash producer disrupted the industry by lifting limits on production that underpinned prices.
The stock slumped 19 percent to 151.92 rubles by the close in Moscow, the most since November 2008. Uralkali lost as much as 26 percent and closed down 19 percent at $23 in London, the steepest decline since February 2009. That trimmed the discount to the local stock to 0.2 percent.
The Russian potash producer will switch exports to its own trader, Uralkali Trading, from the Belarusian Potash Co. joint venture, known as BPC. Uralkali sees global potash prices falling below $300 a ton after the company changes its trading policy, Chief Executive Officer Vladislav Baumgertner said. The stock slumped last week as Russian billionaire Alexander Nesis sold off his 5.1 percent. Two weeks earlier, the Berezniki, Russia-based company completed the buyout of shareholder Zelimkhan Mutsoev for $1.3 billion.
“Uralkali unexpectedly decided that sales prices aren’t that important,” Elena Sadovskaya, an analyst at Rye, Man & Gor Securities, said by phone from Moscow today. “This creates enormous risks.”
Uralkali’s cooperation with Belarusian potash producer Belaruskali reached “a deadlock” after the government in Minsk canceled their joint trader’s exclusive right to export the country’s potash and Belaruskali made independent deliveries, Uralkali said in a statement.
“Those who followed the actions of the main shareholders, received their signal in time,” Kirill Bagachenko, who manages about $3 billion in Russian equities at TKB BNP Paribas Investment Partners in St. Petersburg, said by phone.
Uralkali’s venture and a group comprising Potash Corp. of Saskatchewan Inc., Mosaic Co. and Agrium Inc. had played off each other, moderating output and exports along with demand to prevent price swings.
The yield on Uralkali’s dollar bonds due April 2018, surged 35 basis points to a record 5.29 percent, the biggest jump since June 24.
BCS cut the stock to sell today following the announcement, according to an e-mailed note. VTB Capital reiterated its sell recommendation and reduced the 12-month price estimate to $12, citing concern potash will trade 40 percent below the five-year average following the break-up of Uralkali’s “oligopoly” in the sector, according to a note today.
Nesis had bought into Uralkali together with billionaires Suleiman Kerimov and Filaret Galchev in 2010. Mutsoev agreed in June to sell his 189 million shares, a stake of about 6.4 percent.
“There’s a clear trend of investors exiting Uralkali as there are no signs of recovery for the potash market in the near future,” Sadovskaya said by phone yesterday. “This market is not meant for investors seeking fast returns. People have been streaming out of the stock following the Nesis stake sale.”
Prices for potash have fallen because of plentiful producer inventories, stockpiles in China, which imports about a fifth of global shipments, and historically low import volumes in India.
Potash Corp. cut its 2013 earnings forecast by as much as 20 percent last week because of falling prices for the nutrient used in fertilizer. Goldman Sachs Group Inc. lowered Uralkali to hold July 24, a day before VTB Capital reduced its rating on the stock to sell.
Potash Corp. tumbled 20 percent to $30.145 by 10:07 a.m. in New York, the most on an intraday basis since October 2008. K+S AG, a German potash maker, retreated 24 percent to 20.10 euros, the most since the stock’s listing in September 1998.
“For many years BPC, which accounted for 42 percent of the global potash market, had been the sole supplier of potash fertilizers manufactured by Belaruskali and Uralkali,” Denis Vorchik, an analyst at UralSib Capital, said in an e-mailed note today. “The split between the two key global players is a game changer for the concentrated global potash market. The lack of supply-side discipline will cause global potash producers to switch to volume-maximization strategies, which will lower the bargaining power of suppliers and put potash prices under pressure.”
Uralkali, which has the lowest production costs among international peers, will run at full capacity next year, Baumgertner told reporters by phone today. Output will rise to 13 million tons in 2014 from 10.5 million tons this year, he said. Uralkali’s production cost is $62 a ton, compared with more than $100 a ton for North American producers and almost $240 in Europe, according to a company presentation in July.
Uralkali’s first-quarter sales fell 18 percent from a year earlier to $738 million as volume tumbled 10 percent, the company said on June 17. The average export price of $313 a ton represents a 17 percent slump from the year-earlier period, Uralkali said.
Goldman Sachs, in cutting the stock’s rating, cited diminishing support from Uralkali’s $1.6 billion buyback program as it nears its end, according to the July 24 note. Uralkali’s purchases totaled $1.25 billion as of July 19, the company said in a statement.
Uralkali froze the program after deciding to change the trading policy, seeing “volatility” in potash producers’ shares, Baumgertner said. It won’t announce a tender offer for its stock at the end of the year, he said.
Buying a Uralkali stake was a “strategic, long-term” investment for Kerimov’s Nafta Moskva, Anna Kolonchina, chief managing director at the investment holding company, said by e-mail. Nafta Moskva sees “fundamentally strong” characteristics in the potash industry and is confident in the sector’s growth, she said. The press service of Eurocement Group, where Galchev serves as board chairman, declined to comment, as did Uralkali’s press service.
The benchmark Micex Index lost 0.8 percent to 1,387.31 by the close in Moscow today. The dollar-denominated RTS Index fell 1.1 percent to 1,326.41. The Bloomberg-Russia-US Equity Index of most-traded Russian stocks in the U.S. slumped 0.7 percent for its fifth day of declines today.