Uralkali Mulls Potash Sales Goal Cut, Indicating Stocks Gain

  • Producer is studying possible 300,000-ton cut in sales target
  • 2016 demand seen returning to as much as 61 million tons

Uralkali PJSC, the largest potash producer by output, is ready to cut its sales target to support a market dogged by oversupply, while forecasting better demand for next year.

“We are carefully monitoring the development of the situation on the market and we are now considering the possibility of reducing the sales target for the fourth quarter by about 300,000 tons,” Vladislav Lyan, appointed marketing director last month, said in an e-mailed response to questions on Friday. He declined to give the current sales target.

The $20 billion world market for the fertilizer is plagued this year by an excess of supply, with prices in the Brazilian spot market, one of the largest, falling more than 20 percent. Potash Corp. of Saskatchewan Inc., the top North American producer, and Mosaic Co. have already sought to curb output in an effort to buoy prices. Belaruskali JSC said Nov. 4 it would operate at 65 percent capacity by the end of the year as demand slows.

Uralkali raised its 2015 output target by 6 percent to as much as 10.8 million metric tons in June as flooding eased at one of its mines in Russia’s Perm region. It produced 8.7 million tons in the first nine months, down 5.4 percent from a year earlier. In the past several years, the company’s sales have matched production.

Adding Stockpiles

Even as Uralkali studies cutting the sales target, the company will exceed its 2015 output plan and may add some production to stockpiles for the first time since the fourth quarter of 2011, Konstantin Yuminov, an analyst at Raiffeisenbank in Moscow, said by phone.

“To reach the announced production target the company just needs to make 2.1 million tons in the last quarter, while normally this year it was making about 3 million tons per quarter,” Yuminov said. Output is set to be about 2.5 million to 2.7 million tons in the last three months of this year, he said.

Uralkali expects the market to recover next year, with world demand rising to as much as 60 million to 61 million tons, from this year’s 58 million to 59 million tons, Lyan said. Economic conditions will improve, including stabilization in the currencies of major potash consumers, while inventories won’t be as high as at the end of 2014, the executive said. Last year, global potash demand was at a record 63 million tons, according to Uralkali’s data.

Companies’ efforts to curb sales may not be enough to drive a recovery in the market.

“Announced curtailments by major firms total roughly 1 percent of annual global shipments,” Jason Miner, a Bloomberg Intelligence analyst, said by e-mail. “They’re meaningful for each firm acting, but the aggregate impact on the market looks mild.”

China, the country that’s the biggest potash consumer and crucial to setting annual prices for the commodity, will probably agree a contract at $275 a ton next year, down from $315 in 2015, according to Yuminov and VTB Capital analyst Elena Sakhnova. In the worst case for producers, it may even get $250 a ton, suggesting spot prices of about $275, Sakhnova said. Lyan declined to comment on prices, only saying talks with China will start in December.

“The industry is in crisis and by 2020 may run at just 73 percent of capacity,” Sakhnova said.

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