Potassium Fertilizer Prices Fall After Aggressive Export Strategy

CEIC Russia Data Talk: Mineral fertilizer, a stable niche of Russian exports (equivalent to 16% of Russia's total exports of non-energy related products), have been reeling in the past few months, with a 17.5% year-on-year (yoy) decrease in producer prices for potassium fertilizers (about one-third of all produced mineral fertilizers) recorded for September 2013. The decline in prices has been reflected in its derived export price (the ratio of export value to export volume in real terms), which fell by 12.2% yoy in August 2013. However, there has been a reversal in the production trends for potassium fertilizers, which increased by 39.4% yoy during September 2013 compared to 5.3% yoy growth during August. The growth in production occurred after a long decline during the April-July 2013 period, illustrated by the 22.8% and 19.8% yoy declines in production during April and July 2013 respectively. Despite the high production growth in September 2013, year-to-date production of potassium fertilizer of 7.30 billion tons is still less than the 7.54 billion tons in January-September 2012, ignoring seasonal factors. These changes in the potassium fertilizer market are directly related to the strategy of Uralkali Company, a monopoly producer of potash (a key ingredient in potassium-based fertilizer) in Russia. While the company improved its financial performance during 2011-2012, this was marred by the prolonged recession during 2013. The company's sales volume fell by 23.5% yoy during the third quarter of 2013, while its corresponding net profit fell by 36.6%. The company had been relatively resilient to the global financial crisis in 2009, avoiding annual losses, in contrast to the majority of the firms in the (non-oil and gas) real sector of the economy. Uralkali's net profit of RUB1.15 billion during 2009 was its lowest over the past eight years, but soon reverted to RUB14.5 billion during 2010 as potassium fertilizer exports grew by 63.8%. This was further topped by the record net profit of RUB42.6 billion during 2011, although it was subsequently followed by a negative trend in 2012, in some measure due to the high base effect of the previous year: 2012 net profit growth was just 15.3% and 2012 export growth – almost 34%. The reason for the fluctuations in potassium fertilizer prices and the deteriorating financial performance of the monopoly is the desire of shareholders to gain export market share and undercut foreign competitors, especially Belarusian companies. The dissolution of agreements with its Belarusian partners has worsened Uralkali's position on the foreign market and brought down the domestic potash market, as the decline of producer prices on the domestic market was about 23% in yoy terms for three consecutive months from May to July 2013. However, despite the decline in potash exports (down 24.8% year-on-year in July and 43.7% in August), coupled with falling domestic producer prices (down 23% and 9.5% during the same months), the demand for potassium fertilizers due to low prices in the foreign market should increase, which will allow the Uralkali Company to show better financial results in the future. By Evgeny Shlyakov Google+ Author Profile - CEIC Analyst Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
8th November 2013 Potassium Fertilizer Prices Fall After Aggressive Export Strategy