Potash, A Year Later

MINOLTA DIGITAL CAMERAThey say that time heals all, perhaps the same is true with the potash markets. We are now over a year past the Russian/BPC debacle where Uralkali stated that they were going to abandon the price over volume paradigm and sell as much potash as they could. The stated reason for the break up was in essence to punish their trading partner for selling outside of the trading agreement. Schlumpberger Inc believes that there was more to this move than the stated reasons, but that is a topic for another day.

Uralkali in their latest earnings release (Q2 2014) has indicated that their production increased compared to the previous year by 33 percent. Their sales also increased compared to 2013 by 44 percent. Uralkali was also able to drive their COGS down by 12 percent to $51 per tonne. However even with all of these strong metrics, net profit for the Russian producer was down by seven percent. Their strategy of volume over price impacted more than the bottom line, as it also resulted in the jailing of their previous CEO, a change in the board of directors, and a change in majority owner(s) of the company.

Now that a year has passed, the price of potash at least domestically has returned to a level that is equal or very close to that of a year ago. Unfortunately the price of export potash has not reached those same levels, but there is speculation that an increase is in the works for some of the 2015 contracts. The volumes for potash are also reaching record or near record levels, especially that of domestic potash.

Revenues and production are one part of the value equation, but more than just the price of potash was affected with this maneuver. In looking at the share price of fertilizer and potash producers, or those working to develop potash projects, the stock price continues to languish from that prior to the Russian announcement. For those integrated fertilizer producers the price is off a little (and this is in spite of share buy backs which should boost share prices), and for those working to develop properties it is off by almost half, or in some cases substantially more than that.

What does all of this mean? First that there are going to be “bumps in the road” as projects develop (and not just potash projects!). The Russian strategy caused considerable uncertainty and unrest in the markets, but largely the domestic market appears to have recovered and prices are returning to a more normal level. The increase in volume has also highlighted that there are issues within the logistics infrastructure of some areas that can cause disruptions to the delivery of this necessary mineral.

With the economics of potash returning, strong demand, and these infrastructure issues perhaps there is still room for good potash projects that meet certain needs and criteria.

If you would like to discuss a project, please contact Schlumpberger Inc.

Leave a Reply