Uralkali shares jump, as hopes rise for potash demand

06.03.2015

Shares in Ukralkali soared after the Russian potash giant unveiled a bigger-than-expected rise in underlying earnings and lifted estimates for consumption of the fertilizer, both for last year and 2015.

The group reported a tumble to a $631m loss for 2014, from an after-tax profit of $666m the year before, once as $2.01bn hit from losses on foreign exchange and derivative revaluations, thanks to the collapse of the rouble.

However, underlying earnings before interest, tax, depreciation and amortisation rose by 9.2% to $1.78bn, exceeding market expectations of a figure of some $1.6bn.

Revenues, up 7.1% at $3.56bn, also narrowly exceeded investors' forecasts of a $3.52bn figure.

'Better-than-anticipated recovery'

Uralkali cited "robust demand" for its revenue increase, with potash shipments soaring 24% by volume to 12.3m tonnes, encouraged by a drop in prices of 13.1% to $233 per tonne, for exported product.

Indeed, last year "was characterised by solid global potash demand", the group said, raising to 62m tonnes, from 59m-60m tonnes, its estimate for world consumption.

"Major markets have recovered much better than anticipated, led by lower year-on-year potash prices and distributor restocking needs."

The raised demand had seen potash producers lift to 83-85% of capacity their production rates, from 73% in 2013 – a strong sign for profitability.

Market prospects

Uralkali also nudged higher its estimate for world potash consumption this year, to 58m-59m tonnes from 57m-59m tonnes, flagging in particular improving prospects for imports by India, the second-ranked importer of the nutrient.

"Indian potash demand is expected to gradually recover, with consumption volumes reaching approximately 4.5m-4.7m tonnes in 2015," and with the prospect of a further boost from a shift in India's fertilizer subsidy regime away from a nitrogen focus.

"Demand may be further supported by changes in the fertiliser subsidy structure aimed at balancing the application rates of NPK fertilisers within the framework of India's budget coming into force in April," Uralkali said, NPK nutrients containing potash and phosphate as well as nitrogen.

"Further review of the Indian subsidy allocation represents an opportunity for faster recovery of the market."

Shares rise

The group also revealed more details of efforts to boost output, after flooding prompted it in November to close Solikamsk-2 mine, producing more than 2m tonnes of potash a year.

The group is to bring forward to 2017 the opening of new capacity at the Solikamsk-3 mine, and build two new shafts at Solikamsk-2 by 2020 to "mine safely the remaining reserves" at the site.

Uralkali shares closed up 6.5% at 187.45 roubles in Moscow, while its depositary receipts stood 8.9% higher at $15.31 in late deals in London.


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