Uralkali predicts potash prices to fall US$300/tonne

Keyword:
Publish time: 1st August, 2013      Source: www.cnchemicals.com
Information collection and data processing:  CCM     For more information, please contact us
   


August 1, 2013

   

   
Uralkali predicts potash prices to fall US$300/tonne
   
   

   

After the break-up of the two cartels controlling world sales of the nutrient, potash prices are to fall sharply, but not many buyers will buy it as cheap as the US$300/tonne suggested by Russia''s Uralkali.

   

   

Uralkali''s exit from the Belarus Potash Company cartel it operated with Belaruskali continued to rock the market on Wednesday (Jul 24), provoking further share price losses and prompting conjecture of the cancellation of a series of production projects, including BHP Billiton''s giant Jansen mine.

   

   

However, a forecast by Uralkali, the world''s top potash producer, that loss of pricing discipline caused by the cartel''s break-up could see potash values could fall below US$300/tonne, from current levels of about US$400/tonne, was questioned by many analysts.

   

   

Credit Suisse, cutting its forecasts for potash prices - and its rating on shares in Uralkali to underperform from neutral, and on Israel Chemicals Ltd (ICL) to neutral from outperform - said that China, the top importer, may be able to secure a 2014 potash deal at about US$300/tonne.

   

   

However, with China typically negotiating the cheapest prices, thanks to the size of its orders, other purchases would be required to pay more, with India acquiring supplies at some US$320/tonne, and Brazilian and Asia prices averaging US$350/tonne next year.

   

   

Paradigm Capital cut its estimate for average 2014 potash prices by US$39 to US$347/tonne. Such prices would still offer healthy profits to many operating potash groups, with cash production costs at Uralkali, the most economic producer, pegged by Paradigm at US$60/tonne. However, extra demand encouraged by the lower prices may offer some support to prices by swallowing up excess capacity and tightening the market.

   

   

AltaCorp forecast that extra demand from Brazil, China, India and South East Asia, coupled with restocking in North America, "could generate an additional four million to five million tonnes in demand," taking the world total to about 60 million tonnes. That is in line with maximum workable production, assuming an 85-90% operating rate on world mines with capacity for about 70 million tonnes. "This would suggest tightening supply/demand fundamentals over the short term," AltaCorp analyst John Chu said.

   

   

Nonetheless, analysts suggested that prices will be low enough to scupper many potash projects, whose financial viability was based on higher prices of the nutrient.

   

Chu said he was assuming that BHP Billiton and K+S projects in Canada "likely do not move forward".

   

   

Paradigm said that "there were already question marks on the economics of large greenfield projects with potash prices at less than US$450/tonne, and the likelihood of any of these big projects getting board approval at US$300/tonne potash is zero".

   

   

A spokesperson for BHP, which is expected to decide on the massive Jansen potash project within the next year, declined to comment on any impact on the project from Uralkali''s decision.

   

   

Shares in potash groups continued to fall on Wednesday amid a continuing flood of broker downgrades to shares in in potash groups. However, for many of the bigger companies, shares failed to break below intraday lows set on Tuesday (Jul 30), immediately after Uralkali''s announcement.

   

   

One exception was shares in K+S, which dipped to €17.95 (US$24) in morning deals in Frankfurt, a level not seen since March 2007. For K+S - which acquired its in-development Legacy potash site in Canada two years ago through purchasing prospecting group Potash One - the project has offered a way to reduce exposure to relatively high-cost supplies in its native Germany.