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Struggling SQM heralds revival at potash division

SQM heralded some revival in its potash division, after a fall of more than 20% in profits from the nutrient, although the forecast failed to disperse the clouds that many analysts have over the company's shares.

The Chilean fertilizer-to-lithium group, unveiling group earnings down 41% at $152.1m for the first half of 2014, on revenues down 11.2% at $1.06bn, attributed its worsened performance to "significant challenges" in both its nutrient and chemical operations.

In industrial chemicals revenues fell 45% to $60.6m, and in iodine by 28% to $183.3m, outpacing a 5.5% drop to $299.6m in potash sales.

However, while the iodine division faces the prospect of continued weak prices of the element, used in X-ray technology, liquid crystal displays and pharmaceuticals, the group forecast better times for its potash division which, like rivals, suffered from fallout of last year's break-up of the Belarusian Potash Company cartel.

Russia's Uralkali in July last year broke-up the cartel, which controlled more than 40% of world potash trade, prompting a collapse in values of the nutrient.

Price outlook

Patricio Contesse, the SQM chief executive, said that potash prices had "stabilised" during the April-to-June quarter, with the group "seeing signs that prices may begin to recover in the coming months".

Indeed, prices have already risen "slightly" in Brazil, the group's most important potash market, prompting SQM to believe that this "pricing trend could continue in coming quarters".

Furthermore, the group forecast a continuation in its jump in sales volumes, which rose 23% in the first half of the year, to 837,700 tonnes, offsetting, in revenue terms, most of the impact of lower prices.

"In any case our cost position allows us to remain very competitive in this market," Mr Contesse said.

'Lower potash prices'

Nonetheless, shares in SQM, which exploits ore reserves in the Atacama desert, edged 1.2% lower to $27.79 in afternoon deals in New York, amid some scepticism over the prospects of any substantial potash price recovery.

"We maintain our underperform recommendation and expect lower potash prices to continue throughout the year," said CrediCorpCapital.

At LarrainVial, Vincente Rodriguez restated "sell" rating on SQM shares, saying that the results were "slightly" below his expectations, and forecasting that "low potash prices are here to stay".

At ItauBBA, Giovana Araujo restated an "underperform" rating on the stock, with a year-end price target of $28.00, citing a "negative" outlook for prices of potash and iodine.

"The decrease in global grain prices is likely to jeopardise any major recovery in potash prices this year," Ms Araujo said.

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