2013 highlights for the global potash market
The global potash industry underwent significant change in 2013
In 2013, the business environment was very challenging for the global potash industry. Although potash demand increased by 6% year on year to 54 million tonnes, the recovery was slower than expected. Purchases were delayed for a number of reasons: the absence of supply contracts with China for the second half of 2013, high inventories accumulated in key markets by Q3 2013, and caution among buyers in India, who took a wait-and-see approach sparked by the weaker rupee combined with political and economic uncertainties. The combination of these factors against lower year-on-year prices for agricultural commodities resulted in further significant reductions in potash prices by the end of 2013 — by
In the first half of 2013, potash sales volumes were stronger compared to the corresponding period in the previous year, growing by 9% year on year. Most suppliers made consistent deliveries to major markets, trying to improve their performance through aggressive pricing policies. As a result, potash prices fell in spite of healthy demand. There was strong pressure from buyers in Brazil and South East Asia for low prices due to market oversupply. Potash prices also came under downward pressure due to substantial decreases in benchmark phosphate and urea prices and a drop in crop prices.
Although the overall potash market saw increased sales volumes in H1 2013, Uralkali’s deliveries fell due to aggressive competition in the market. In H1 2013, the Company cut production substantially because of oversupply in certain key markets. For example, Uralkali did not make deliveries to Brazil, one of its key markets, at the beginning of the year and, as a result, lost substantial market share to other suppliers there.
In maintaining a price-over-volume strategy, the Company progressively lost its market share to other suppliers in key regions. As such, Uralkali’s export market share declined by approximately 5% during the first six months of the year.
After the H1 2013 reporting period, the Company reconsidered the sales strategy of the business. Following the meeting on 29 July 2013, the Board of Directors decided to stop Uralkali’s export sales through Belarusian Potash Company (BPC) and direct all export volumes through Uralkali Trading.
At the same time, the Company re-adjusted its market approach to target revenue maximisation. In line with this approach, in H2 2013, Uralkali focused on pursuing higher sales volumes and re-establishing its position as the market leader, taking advantage of its low production costs.
For most of Q3, the potash market stood at a virtual standstill. Customers drew down their inventories and awaited price clarity. Brazil remained the most active market in the second half of 2013. In India, the strength of the US dollar (INR68/$1) made conditions difficult for importers, who were affected by the maximum retail price for potash. Indian buyers deferred deliveries of outstanding tonnages and pushed for lower prices for the remaining shipments. In the autumn, India renegotiated the contract price Source: FMB(US$369-375/t vs. previous US$427/t).
Suppliers reported lower potash revenues for Q3 2013 compared to the corresponding period in the previous year due to a weaker pricing environment and lower volumes.
Uralkali has managed to regain its market share in key regions after adopting its revenue maximisation strategy. Since August 2013, the Company has operated close to full capacity utilisation.
By the end of 2013, there were clear signs of stabilisation in many markets around the globe.
Current situation and outlook for 2014
In determining the direction of world potash market development for 2014, demand from key markets, Brazil, China, South East Asia and India, will be a major factor.
After delaying H2 2013 contract deliveries, China settled contracts with major potash suppliers for the first half of 2014. India re-entered the market and signed the contract with Uralkali in April 2014. Previously cautious buyers have become very active in spot markets, providing a firmer base for spot pricing.
Lower potash prices are expected to make the fertiliser more affordable for farmers in major markets, and more price certainty will facilitate greater demand.
In 2014, global deliveries are expected to reach
In Brazil, potash demand is expected to remain robust and surpass 2013 delivery levels as farmers continue to respond to positive crop economics. Chinese demand is expected to be in the range of
Uralkali export sales
- Uralkali decided to stop sales through Belarusian Potash Company (BPC) and direct all export volumes through Uralkali Trading.
- Revenue maximisation strategy enabled the Company to regain export market share in the second half of 2013.
- Since the Company adopted the new strategy, it has been maximising export revenues by utilising its leading cost position and available capacity, exporting around
0.8-0.9million tonnes per month.
- Uralkali has a worldwide presence selling its products to more than 60 countries. The Company’s sales portfolio is balanced between spot and contract markets. Maintaining a balance between spot and contract markets allows Uralkali to be flexible and to respond quickly to changes in the market.
Potash and its consumption in Russia in 2013
In Russia potash (potassium chloride) is primarily used as a fertiliser. It can be used both as one of the raw materials in the production of compound fertilisers and as a fertiliser to be directly applied to soil. Potash is also used by the oil industry as a component of drilling muds. In addition, it is used in smaller amounts in non-ferrous metallurgy and the food industry.
In 2013, supplies to the Russian market amounted to 1.86 million tonnes, 10.6% lower than in 2012. This was due to changes in the system for providing farmer subsidies and in pricing in the potash market following Russia’s accession to the WTO. At the same time, domestic supplies remained at historical levels.
We see significant growth potential in the Russian market and continue to devote considerable attention to our customers by implementing educational and research programmes.
Key potash consumers in Russia (mln t)
Manufacturers of compound fertilisers
(including for export)
The changes in domestic sales policy in 2013 are largely associated with Russia’s accession to the WTO and the transition to market-based fertiliser pricing, effective from 1 January 2013.
The principle of setting potash prices for Russian producers of compound fertilisers (NPK) based on minimum export prices was established by the Recommendations of the Federal Antimonopoly Service (FAS) of Russia on securing non-discriminatory access to potash, which are in force from 1 January 2013 to 31 December 2017. Since October 2013, prices for Russian NPK producers have been calculated on a monthly basis, which allows the Russian potash market to be more responsive to changes in international potash prices. Therefore, Russian exporters of compound fertilisers that contain potassium can also modify their prices according to market conditions.
The Company strictly adheres to its obligations to ensure non-discriminatory access for potash consumers.
|Sales in 2013||Main consumers|
Plant and VSMPO
— Avisma Corporation
Companies in the oil,
chemical, power, and
industries and public
|2.6 million m3||Berezniki Soda Plant|
Improving cooperation with regional distributors
In 2013, the Company strengthened its cooperation with regional distributors that offer a full range of mineral fertilisers, plant protection products, seeds and other products to domestic agricultural producers.
In order to facilitate the development of a network of reliable regional potash distributors, Uralkali introduced minimum criteria to be met by such companies:
- availability of warehouses with capacity to receive, store and ship potash, as well as deliver to end-customers
- availability of professional agronomists who are able to convey to farmers in every region the importance of integrated application of mineral fertiliser, and improvements in soil fertility and the quality of agricultural products
- financial stability and the capacity to provide loans to farmers.
In 2013, the Company took action to meet the needs of the market for shipments of packaged products. As of 2014, Uralkali is able to fully meet customer demand for packaged products, which will improve access to our product for small consumers across all regions of Russia.
Educational programmes and activities
Joint experiments in 2013 with Kuban State Agrarian University on the application of potash fertiliser in rice cultivation resulted in changes in the main characteristics of the yield structure: the panicle grain mass and
In 2013, the Company strengthened its position in the field of scientific and applied agronomic expertise.
In Russia, the Company continued its flagship research project entitled “Improvement of recommendations on the use of potash fertiliser in intensive farming”, carried out in cooperation with experts from the International Plant Nutrition Institute and the D.N. Pryanishnikov All-Russia Research and Development Institute of Agrochemistry. Following research on sugar beet and other major crops in the Central Black Earth Region and southern Russia, the Company has received the preliminary results. They indicate that the application of potash fertiliser leads to a significant increase in yields and profitability with regard to the tested crops. These experiments will continue in 2014.
The beginning of systematic and large-scale cooperation with Russia’s leading agrarian universities was a further step in the development of agronomic expertise in the domestic market. In 2013, together with Voronezh State Agrarian University, V.Y. Gorin Belgorod State Agricultural Academy, and Don State Agrarian University, the Company established demonstration planting plots. This collaborative work focused on potassium-responsive cultures, consideration of geographical diversity and thorough analysis of findings as the basis for the further development of agronomic recommendations.