Uralkai & The Potash Revival -- A Headfake or A Genuine Recovery?

January 16, 2014 06:46 AM

More scuttlebutt from the Perm. Uralkali had threatened a volume-over-price strategy in an effort to gain marketshare when it split from Belorussian potash partners in July 2013. That news came at the same time as the historic slide in corn prices in the U.S. drove North American fertilizer prices south. Uralkali would like to have taken credit for the falloff in potash pricing, but in America, corn futures have held sway.

Uralkali has patched things up with its neighbors and while we have not yet seen a restart of the joint venture Belorussian Potash Company, the two parent countries, Russia and Belarus, are already part of Putin's Customs Union, designed to facilitate exports from the FSU.

Now Uralkali predicts higher pricing ahead for potash. If we question Uralkali's influence over the decline in North American retail potash pricing, we must question their level of influence on the recovery as well.

Stock prices at PotashCorp, Intrepid Potash and others fell hard at the news in July which caused a panic among potash investors who had felt that growing global demand for fertilizer would insulate their investments from price swings. Since then, PotashCorp has announced an 18% cut in both production and workforce. Other potash producers have followed suit.

Meanwhile, the price of potash exports to China has not yet been set. The Chinese price has a great deal of influence over global potash sendout prices based on the high volume of product they and India import annually. The 2012 price was negotiated in late December at $400.00/tonne. China is now offering $280 for the same tonnage. Most believe the price will fall at a happy medium between that figure and producers' asking price of $330.00.

We expect slightly higher prices for P&K by spring with a possible floor in February. But if China inks the bargain basement price of $280/tonne, the price recovery here in the U.S. will be limited. However, prices could forge much higher if China is forced to pay the full $330.00.

As much as Uralkali would like to call itself a Maverick, the real wildcard here is demand from the American farmer. Low crop prices have slashed on-farm P&K budgets by half and even as prices are more than $100/short ton below year-ago, declines in corn futures and uncertainty for the commodity sector in general are giving crop producers pause.phil jackson lipofsky l

If Uralkali's intent to repair the damage they have done to the potash industry comes in the form of higher prices to China, prices will increase in kind here. However, the decline of the rupee will continue to limit Indian demand in the same way declining crop prices are in the U.S.

With the political gamesmanship and shareholder restructuring that have characterized the potash sector in the past six months it is hard to tell the headfakes from the truth. At this point, the best thing to do is await price guidance from the Chinese and keep our feet. We are currently 20% covered on spring potash and are looking for the opportunity to increase spring coverage in the next two or three weeks.

But keep an eye on your Monitor for an ALERT if China finds a seller at $280.00. At that point, we will ignore all the double talk and head-faking, and extend coverage for spring potash -- that is, if anybody even wants any this year.

Photo credit: Steve Lipofsky www.Basketballphoto.com / Foter.com / CC BY-SA

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