Uralkali likely to reduce production in Q1 - paper
MOSCOW. Jan 31 (Interfax) - OJSC Uralkali , one of the world's largest potash producers, will probably reduce production in the first quarter of 2012 in order to stabilize the market.
"Due to the debt crisis in Europe, buyers today are wary, distributors are afraid to accumulate fertilizer at warehouses, because amid the economic uncertainty there is a risk of it falling in value. This position is reasonable and, seeing this caution, we will probably reduce production in the first quarter," Uralkali chief executive Vladislav Baumgertner said in an interview with Kommersant.
He said this would make it possible to stabilize the market and prepare it for a new upward trend that the company expects in the second quarter, when the planting season begins in many countries.
Baumgertner also said that in the second quarter the company expects to sign a contract with Chinese producers with a major increase in prices. There are also plans to sign a contract with Indian customers, despite problems related to the devaluation of the local currency. He said there was "not talk at all about any discounts."
"The negotiating position of potash companies is very strong. Moreover, all potash producers continued to work at 100% capacity right until December, and entered 2012 with minimal inventory," Baumgertner said.
He said that despite the slump in demand for potash in the first quarter, the sector's economic fundamentals remain strong. Prices for agricultural commodities are at a level that allows farmers in all markets to operate with a very high profit. "Therefore we do not expect a serious drop in terms of demand. On the contrary, we believe that 2012 will be very strong in most key markets," Baumgertner said.
He estimated that global demand for potash totaled 58 million tonnes in 2011. Prices last year rose on both the spot and contract markets, but due to a slump in the fourth quarter the potash price did not manage to reach $600 by the end of the year as the company had forecast earlier.
Uralkali now has a 20% share of the global potash market, and expects to increase its share to 25% in future, Baumgertner said.
Commenting on Uralkali's potential plans for mergers and acquisitions, Baumgertner said the company does not intend to diversify into other businesses or acquire greenfield projects.
"And there are very few active potash producers in the world. Belaruskali still remains a state company. Therefore, our main strategy remains the strategy of organic growth, which will require investment of a little less than $6 billion in the next ten years, assuming the company will generate EBITDA of several billion dollars per year," Baumgertner said.
