China, India potash deal hiccups trip up K+S

K+S shares tumbled more than 5% after the fertilizer and salt group cut its profits hopes for 2012, citing a hit to potash markets from a hold-out by China and India, the major importers, which threatens 2013 takings too.

The German-based group cut to about E530m, from E540m-600m, its forecast for this year's earnings, on revenues expected at the lower end of the range of E3.9bn-4.2bn guided to.

The downgrade reflected the ditching of hopes for profits growth at its potash division, the main earner, thanks to the impact of a refusal by China and India, the top buyers, to sign fresh import contracts which had been expected over the summer.

This impasse in talks which are prolonged even by the standard of negotiations which have a fraught history - looked set to drive K+S's potash profits "slightly" lower in 2013 too.

'Cautious assessment'

"The backdrop of the continuing absence of contract conclusions by North American and Russian producers with Chinese and Indian customers leads to an overall cautious assessment," the group said.

While potash sales, by volume, were set in 2013 to match this year's expected result of some 6.9m tonnes, "a slightly lower average price level is assumed".

With K+S also unveiling operating profits for the July-to-September quarter of E156.7m, below the E166m expected by analysts, the statement was poorly received by investors, who sent the group's shares down nearly 6% in early deals in Frankfurt.

The stock recovered some ground to close at E34.29, a drop of 4.5%.

'Potash holiday'

While K+S is not directly involved in the talks with China and India - which buy mainly from the big North American cartel Canpotex or its former Soviet Union counterpart Belarusian Potash Company - it is affected by the knock-on effects of the failed negotiations in raising available supplies of the nutrient.

"The continuing absence of contract conclusions by North American and Russian producers with Chinese and Indian customers led to capacities not being fully utilised, particularly in North America and Russia," K+S said.

"Against this backdrop, international prices for potassium chloride came under pressure towards the end of the third quarter."

The so-called "potash holiday" by the top buyers has already caused a profit-warning at PotashCorp, the top producer by capacity, while playing a big role in a fall in profits at Agrium, also based in Canada, below market expectations.

K+S cut its estimate for industry potash sales worldwide by 2m tonnes to 54m tonnes, which would represent a 10% decline on the 2011 result.

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