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K+S says booming potash volumes will lift revenues, earnings

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German fertilizer and salt group K+S forecast earnings and profits to bounce back this year, thanks largely to higher potash production. But only a "slight" increase in prices from the very low levels seen last year is expected.

Revenues and earnings are expected to "increase tangibly" in 2017, the company said.

"Assuming average weather conditions for the rest of the year, significantly higher sales volumes in the potash and magnesium products business unit is anticipated, because the first volumes from Legacy in Canada and Magpower in China are also expected."

Legacy to come online

The company expects the first deliveries from its new Legacy potash plant in Saskatchewan to be completed by the second quarter of 2017.

K+S expects the facility to have a capacity of 2.0m tonnes by the end of 2017, ramping up to 2.86m tonnes by the end of 2023.

K+S forecast potash prices to "increase slightly," from the average E253 a tonne seen in 2016.

At current exchange rates, this is equivalent to about $272 a tonne.

According to Canadian broker Raymond James, prices in the US Midwest stand at $260 a tonne.

Falling earnings

K+S earnings this year were hit by the low price of potash, as well as waste water disposal problems at a key German plant.

Across the company, revenues fell by 17% last year, to E3.5bn.

Group operating profits fell E229m, down from from E782m a year earlier.

Adjusted post-tax profit came in at E131m in the 2016 fiscal year, as compared to E542m in 2015.

Waste water disruption

"The decrease is mainly due to a lower average price level in the potash and magnesium products business unit and the severe production limitations at the Werra potash plant."

Output at the Werra plant has been limited by the problem of disposing of saline wastewater.

"Production limitations at individual sites at the Werra plant were unavoidable, especially during months with low precipitation," K+S said.

"This resulted in a total production shortfall of around 0.8m tonnes in 2016."

Ongoing restriction

At the end of last year, a regional authority in Germany approved the underground disposal of waste water from the company's facility in the Werra valley.

But due to restrictions in the permit, disposal of wastewater "will remain a major challenge" for the facilty through 2017.

"This year, production from our important Werra potash plant will still be impacted by the limitations outlined in the deep-well injection permit," the company said.

But this problem will ease thanks to lower waste water output, after developments to be completed in 2018.

By William Clarke

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