Potash groups struggle as price hits six-year low

Potash prices fell to roughly $300 a tonne for the first time in six years, undermined by the break-up of the Belarusian Potash Company cartel, even as phosphate and nitrogen markets showed some signs of recovery.

Potash prices, as measured by the Vancouver export market, extended to the end of 2013 their decline from levels above $400 a tonne before the demise of the Belarusian Potash Company (BPC), which controlled more than 40% of world trade.

The decline realised forecasts by Uralkali, the Russian potash giant, when it quit BPC in July - over claims that its cartel partner Belaruskali had been selling the nutrient outside the consortium on the cheap of a fall in prices to $300 a tonne, or below.

However, it came amid signs of North American producers coming to terms with the new market conditions, managing to take their potash inventories back below 3m tonnes.

Demand picks up

Potash inventories held by North American producers ended 2013 at 2.99m tonnes, down 4.5% year on year, revised data from Canadian giant PotashCorp showed.

While output was 3.4% higher year on year, at 1.23m tonnes, lower prices lured extra demand.

Domestic sales rose 22% year on year in December to 567,000 tonnes, with exports up 17.0% at 683,000 tonnes.

Nonetheless, while overall North American output rose 8.4% last year, it lagged the 10% growth achieved by Uralkali to 10.0m tonnes, led by a 61% surge to 2.8m tonnes in volumes in the October-to-December quarter, company data earlier this week showed.

And lower prices encouraged by the extra supplies, and break-up of BPC, have continued to hurt producers.

'Difficult decisions'

Intrepid Potash on Tuesday became the latest North American producer to reveal hardship from the price declines, revealing that it was to cut 7% of its workforce, and cut executive pay, in a drive to save $15m in annual costs.

"These are difficult, but necessary decisions," said Dave Honeyfield, Intrepid's chief financial officer, saying that the cuts "better position Intrepid in today's market environment".

"We are treating those impacted by these changes with the respect and fairness they deserve, while creating value for our shareholders by running Intrepid as efficiently as possible."

North American peers included Mosac and PotashCorp, besides Germany's K+S, have already unveiled cutbacks.

Price revivals

However, the continued downturn in potash prices contrasts with nascent recoveries in prices of urea and of diammonium phosphate, which also declined last year, in part as a buyer stand-off in potash, in the expectation of lower prices, spread to other fertilizer sectors.

Chinese exports, especially of urea, have also undermined values.

Many commentators have forecast at least a stabilisation in potash prices too, as farmers buy up ahead of spring sowings in the northern hemisphere, and hopes rise of some rebuilding of ties between Uralkali and Belruskali.

This has appeared increasingly likely given a change of controlling shareholder at Uralkali, although China the top potash importer for which lower prices are beneficial is also a major investor.

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