Potash Prices Likely Found A Bottom
Uralkali is done with price cutting and seeking to raise prices in Brazil and China, reports Bloomberg:
Uralkali Trading, the potash producer’s trading arm, wants $350 per ton for granular potash available in March from the largest Brazilian buyers, according to research released yesterday by Fertecon. That’s an increase of as much as $40 per ton, according to the researcher. The company is also seeking $330 per ton for the first half from China, Argus FMB Potash said this week. China has not accepted the proposal, it said. Chinese buyers are offering $280 per ton, Fertecon said.
The final price with China is likely to be in the middle, around $300/t cfr, says J.P. Morgan.
In addition, Uralkali never really wanted to start a price war and is now back to “price-over-volumes.”
Here are analysts Roman M Gorokhov and Yuriy A Vlasov:
We remind investors, that Uralkali (at that time, “BPC”) had already attempted to raise prices in Brazil in early 2013, publically aiming to increase prices by 6% in the span of three months (from ~$440 in January to $465/t in April). This ultimately failed as Uralkali’s competitors undercut Uralkali, forcing the company to lose market share in the region. This, as well as several other causes, ultimately led to Uralkali enacting its undisciplined “maximum volumes” strategy attempting to regain its lost market share, we believe.
We believe that such a scenario will not play out this time around as profit margins across the industry were damaged as a result of Uralkali’s undisciplined sales.
In fact, we believe that Uralkali’s break from industry discipline in July, 2013 and the rapid potash price deterioration that followed will make industry suppliers think twice before undercutting each other in the future, as a move to sell a few extra tons at the expense of competitors could clearly carry major ramifications. As a result, we consider the possibility that Uralkali’s move may have actually strengthened the potash industry’s disciplined “price-over- volume” strategy going forward, which had been showing signs of wear since 2012.