Market Outlook
Over the last ten years, demand for potash grew on average by 0.9% p.a. while global capacity increased by 3% p.a. over the same period. This widening supply/demand gap resulted in reduced capacity utilisation rates across the industry and contributed to a decline in potash prices starting from 2012. The downward trend continued into Q3 2013 on the backdrop of market uncertainty following the split of Uralkali from BPC.
Brazil remained the most active market during Q3. According to Brazil's national fertiliser association (ANDA), potash imports to Brazil in January-September grew 2% y-o-y to 5.95 million tonnes compared to 5.85 million tonnes in the corresponding period in 2012. Farmer economics were favourable, given the Brazilian real's depreciation against USD and firming of soybean prices. Potash prices eased to USD 310-330 per tonne4 by mid-December. Brazil still remains the most active market with strong demand, and ANDA expects the country to import 7.5 million tonnes of potash in 2013. Brazilian market is expected to continue to demonstrate strong demand in 2014 and Uralkali will continue to focus on growing its market share in the country.
In India, the depreciation of the rupee against USD continued to affect importers in Q3. Although the Indian rupee recently recovered to INR62 against the US dollar compared to the record high INR/USD of 67.8 at the end of August, the currency is still showing a depreciation of about 18% since February. Demand from farmers remains relatively moderate. Since India has renegotiated a contract price (currently USD 369 per tonne5), import volumes have picked up. India is expected to import 3.0-3.2 million tonnes of potash in 2013.
According to the customs statistics, China imported 4.8 million tonnes of potash in the first nine months of 2013 compared to 5.6 million tonnes in the corresponding period last year. Deliveries are currently stable supported by demand from compound fertilisers producers. By the end of 2013, potash inventories in China are expected to fall to 3.5 million metric tonnes from 4.9 million metric tonnes at the end of 2012.
The Southeast Asian markets have been monitoring the situation in China and India. Although palm oil prices this year are lower, they are still firm enough to allow for attractive margins to be made by plantation owners. In December, Uralkali signed a joint venture agreement with Federal Land Development Authority of Malaysia through Uralkali Trading SA which represented a successful strategic step to improve the Company's sales position in Southeast Asia. The joint venture will deliver potash to Malaysia and other countries in the region from January 2014.
In the US, fall season was rather slow due to late harvest and unfavourable weather conditions. Potash prices are quoted at 340-350 per tonne FOB NOLA6. As far as US potash demand prospects in 2014 are concerned, high crop output in the US in 2013 means that a large amount of fertilisers has been pulled out of the ground and there is a need for replenishment. Therefore, very strong demand is expected next year.
In Europe, fall application was rather slow due to late harvest and market uncertainty. Now the region is off-season, with suppliers making deliveries to NPK and SOP producers. A strong market rebound with solid demand for both straight and compound fertilisers is anticipated in Q1 2014.
In Russia, nine months' sales saw a slight decrease year-on-year, with 1.4 million tonnes sold in January-September 2013 compared to 1.6 million tonnes in the same period last year. Demand was challenged by the change in the pricing system following Russia's entry into the WTO, which abolished subsidised prices for Russian agricultural producers and premiums to Russian NPK producers for the volumes meant for the Russian market. Granular potash deliveries in Russia in January-September more than doubled year-on-year following the change in the Company's sales policy.
In September Uralkali agreed KCl prices with Russian compound fertiliser (NPK) producers. In accordance with the agreed terms, starting from October 2013, KCl price is reset every month in compliance with the principles of price determination set by the Russian Federal Antimonopoly Service (FAS) for nondiscriminatory access to potash acquisition. Previously, the price for Russian consumers had been calculated on a quarterly basis.
Oleg Petrov, Uralkali Head of Sales and Marketing, said:
"Our new strategy helped to create a healthier market environment with more affordable pricing expected to promote balanced fertilisation. As potash became more affordable for lower income farmers, and inventories are depleting, we see that demand is gradually recovering.
Meanwhile, our customers continue to be our priority and we continue to further strengthen our customer relationships and focus on increasing distribution efficiency and enhancing our logistics platform to secure long-term increase of deliveries to key markets.
We believe that competitive prices and wider product offering will also drive potash demand growth in 2014, that may reach 58-60 million tonnes in 2014 compared to estimated 53-54 million tonnes in 2013 driven by pickup in China, India, Brazil and Southeast Asia."
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