Uralkali sounded an optimistic note on the potash market,
even as it acknowledged the "unbalanced" conditions which have prompted a 13%
slump in deliveries in 2012, and prompted it to leave half its capacity on ice.
The Russian potash giant said historically high crop prices,
and "strong farm economics", were "providing strong support for positive market
momentum during 2013.
"We hope that positive crop dynamics that we are observing
now will provide for a significant rebound in the potash demand next year," Vladislav
Baumgertner, the Uralkali chief executive, said.
Brazil, where a rush to cash in on strong crop prices is
driving farmers to boost sowings and yields, "is expected to be a major demand
driver in the beginning of 2013", the group said.
"Farmers are eager to buy fertilizers as soybean prices are
high." While soybeans meet their own nitrogen needs, they require phosphate and
potash to maximise yield prospects.
However, Mr Baumgertner cautioned that the potash market had
ended 2012 with an "unbalanced supply and demand situation", which had been
behind Uralkali's announcement two weeks ago that it was to cut its capacity
utilisation to 50% in the December-to-March period.
Indeed, Uralkali estimated world shipments in 2012 falling
some 13% to 48m-49m tonnes, a far cry from the volume increases that many
potash groups had hoped for at the start of the year.
German rival K+S last month cut its estimate for industry potash sales worldwide by 2m tonnes to 54m tonnes, which on its methodology would
represent a 10% decline on the 2011 result.
The slowdown in shipments this year reflected in part 2011's
strong performance, which left "significant stocks", and "unfavourable weather
conditions" in many countries, said Uralkali.
India's late monsoon, for example, "increased cautiousness
among farmers about purchasing fertilizers".
China, India prospects
However, a big part of the market downturn has also been
attributed to a failure by China and India, the top potash importers, to agree
new contracts, holding out for lower prices.
A deal by potash exporters with India "is expected to be concluded
at the beginning of the first quarter of 2013", Uralkali said.
"Indian farmers have been disproportionally applying large
volumes of heavily-subsidised nitrogen fertilizers… while potash and phosphate
consumption has dramatically declined leading to a huge disbalance in the
nutrient content of the soil."
India's potash inventories are also believed to have run
low, with some estimates pegging them at 400,000 tonnes, less than a month's
supplies at historical levels of application.
While China's stocks are seen as considerably larger, Uralkali
said that "inventories are expected to decline over the next three months due
to a seasonal suspension of domestic production and a halt in rail imports.
"We believe China will look to begin renegotiating a new
contract in February 2013."
Uralkali itself sold 2.5m tonnes of potash in the
July-to-September quarter, down more than 10% year on year and behind
production, which fell 10% to 2.6m tonnes.
The reduced sales, behind a drop of 12.3% to $1.06bn in
revenues for the period, "reflected buyer caution across the global potash
market reflected in a slowdown in new orders due to inventory drawdown".
Uralkali depositary receipts, a proxy for shares, gained
0.2% to close at $39.99 in London.
The group's comments follow data released by Canadian rival PotashCorp showing North American potash inventories soaring by more than 20% last month, returning above 3.0m tonnes, deepening concerns over the imbalance between production and demand.