Russia's Uralkali sees room for potash price increase

Fri Jun 14, 2013 9:17am EDT

* Says new projects need potash price of over $600/T

* Says believes in the efficiency of BPC trader

* Says global demand to reach 60 mln tonnes by 2015-2016

By Victoria Andreeva and Polina Devitt

MOSCOW, June 14 (Reuters) - Russia's Uralkali, the world's largest potash miner by output, sees room for global fertiliser prices to rise without attracting new competitors into the market, its head of sales said.

Potential new rival BHP Billiton is mulling whether to develop the 8 million tonne per year Jansen mine in western Canada, which would become the world's largest potash mine.

The few established producers in the market are holding potash prices at $450-$500 per tonne, however, around three times production costs but still low enough to act as a barrier to new entrants, Uralkali's Oleg Petrov said in an interview.

Potential newcomers see an opportunity in a rising demand for chemical fertilizers to feed a growing and increasingly affluent global population.

But at current prices an investor cannot be sure that greenfield projects can turn a profit, Petrov said. "To start new production, potash prices should be more than $500 per tonne at the mine gate and about $600 per tonne on the market."

BHP will make a final decision in its next financial year starting July 1 on whether to go ahead with Jansen, which would open in 2017.

Global potash producers are currently producing at around 80 percent of capacity to support prices. Uralkali's capacity stands at 13 million tonnes per year, while it forecasts 2013 output of 9.5-10.5 million tonnes.

The company, controlled by Russian billionaire Suleiman Kerimov, ranks second by capacity behind Canada's Potash Corp of Saskatchewan Inc.

BPC TRADER

Uralkali sells its potash via Belarus Potash Company (BPC), a joint venture with Belaruskali, and via subsidiary Uralkali Trading S.A., a Switzerland-based firm.

The venture competes with Canpotex, its North American equivalent, which has three members - Potash Corp, Agrium and Mosaic.

The prospect of new competition from BHP could expose cracks in the two groups, which account for 70 percent of global trade in the potash market, sources said this week.

According to Uralkali, BPC is working well as a single company in which Uralkali and Belaruskali join forces. "We believe in the efficiency of BPC," Petrov said.

Uralkali dismissed market rumours that it was selling outside the joint venture.

Petrov was also affirmed that by the end of the year BPC would recover its market share, partly lost in some countries including Brazil as it tried to support prices this year.

Uralkali's 2013 global potash demand forecast is 53-54 million tonnes, up from 51 million in 2012. Petrov, however, sees upside potential to 55 million tonnes in 2013, rising to 57 million tonnes in 2014.

"The only worrying factor (in his forecasts) is the situation in India, mainly its currency which has been highly volatile recently," he said.

Petrov based his optimism on rising first-half demand in India, China, Brazil and the United States. Europe was flat.

"The market has the potential to grow by 2 to 3 million tonnes per year," Petrov said. It could reach the level of 60 million tonnes by 2015 or 2016, according to his estimate.

He expects a minor price and volume increase for the 2014 contracts with China and India, which account for around 15 percent of global demand.

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