By Ksenia Galouchko & Lyubov Pronina - Jul 30, 2013 3:14 AM PT
OAO Uralkali Chief Executive Officer Vladislav Baumgertner said Uralkali plans to run at full capacity after changing trading policy and will boost output to 13 million tons in 2014 from this year’s 10.5 million tons. Photographer: Andrey Rudakov/Bloomberg
An employee surveys a pile of recently excavated potash ore in the OAO Uralkali mines in Berezniki. Photographer: Alexander Zemlianichenko Jr/Bloomberg
The logo of OAO Uralkali sits outside the company's headquarters in Berezniki, Russia. Photographer: Alexander Zemlianichenko Jr/Bloomberg
OAO Uralkali tumbled the most in more than four years as the world’s biggest potash producer said the end of its trading agreement with competitor Belaruskali may trigger a 25 percent plunge in prices for the fertilizer.
Uralkali lost as much as 17 percent and traded down 16 percent at $23.89 as of 9:55 a.m. inLondon, the steepest decline since Feburary 2009. The stock slumped 15 percent to 159.50 rubles in Moscow, widening the discount to the local stock to 0.7 percent.
OAO Uralkali Chief Executive Officer Vladislav Baumgertner said Uralkali plans to run at full capacity after changing trading policy and will boost output to 13 million tons in 2014 from this year’s 10.5 million tons. Photographer: Andrey Rudakov/Bloomberg
An employee surveys a pile of recently excavated potash ore in the OAO Uralkali mines in Berezniki. Photographer: Alexander Zemlianichenko Jr/Bloomberg
The logo of OAO Uralkali sits outside the company's headquarters in Berezniki, Russia. Photographer: Alexander Zemlianichenko Jr/Bloomberg
The Russian potash producer will switch exports to its own trader, Uralkali Trading, from the Belarusian Potash Co. joint venture, known as BPC, the company said today. Uralkali sees global potash prices falling below $300 a ton after the company changes its trading policy, Chief Executive Officer Vladislav Baumgertner told reporters on a phone call today.
“Uralkali unexpectedly decided that sales prices are not that important,” Elena Sadovskaya, an analyst at Rye, Man & Gor Securities, said by phone from Moscow today. “This creates enormous risks.”
Uralkali’s cooperation with Belarusian potash producer Belaruskali reached “a deadlock” after the government in Minsk canceled their joint trader’s exclusive right to export the country’s potash and Belaruskali made independent deliveries, Uralkali said in a statement.
The yield on Uralkali’s dollar bonds due April 2018, surged 33 basis points to a record 5.28 percent, the biggest jump since June 24.
China Stockpiles
Prices for potash are falling because of plentiful producer inventories, stockpiles of potash in China, which imports about a fifth of global shipments, and historically low import volumes in India. Potash Corp. of Saskatchewan Inc. cut its 2013 earnings forecast by as much as 20 percent last week because of falling prices for the nutrient used in fertilizer. Goldman Sachs Group Inc. lowered Uralkali to hold July 24, a day before VTB Capital reduced its rating on the stock to sell.
The stock slumped last week as Russian billionaire Alexander Nesis sold off his 5.1 percent stake two weeks after the Berezniki, Russia-based company completed buying out shareholder Zelimkhan Mutsoev for $1.3 billion, sparking concerns more investors may exit.
“There’s a clear trend of investors exiting Uralkali as there are no signs of recovery for the potash market in the near future,” Sadovskaya said by phone yesterday. “This market is not meant for investors seeking fast returns. People have been streaming out of the stock following the Nesis stake sale.”
Sales Drop
Uralkali’s first-quarter sales fell 18 percent from a year earlier to $738 million as volume tumbled 10 percent, the company said on June 17. The average export price of $313 a ton represents a 17 percent slump from the year-earlier period, Uralkali said.
Goldman, in cutting the rating, cited diminishing support from Uralkali’s $1.6 billion buyback program as it nears its end, according to a July 24 note. Uralkali’s purchases totaled $1.25 billion as of July 19, the company said in a statement.
Uralkali froze the program after deciding to change the trading policy, seeing “volatility” in potash producers’ shares, Baumgertner said. It won’t announce a tender offer for its stock at the end of the year, he said.
Nesis had bought into Uralkali together with billionaires Suleiman Kerimov and Filaret Galchev in 2010. Mutsoev agreed in June to sell his 189 million shares, a stake of about 6.4 percent.
Market Concern
“The market is concerned that after Mutsoev and Nesis sold their stakes there may be further sales by other shareholders,” Denis Vorchik, an analyst at UralSib Capital who has a hold recommendation on Uralkali, said by phone from Moscow yesterday. “Though Kerimov is unlikely going to exit the company you cannot rule out that other shareholders may follow Mutsoev and Nesis. There is no optimism on the potash market.”
Buying a Uralkali stake was a “strategic, long-term” investment for Kerimov’s Nafta Moskva, Anna Kolonchina, chief managing director at the investment holding company, said by e-mail. Nafta Moskva sees “fundamentally strong” characteristics in the potash industry and is confident in the sector’s growth, she said. The press service of Eurocement Group, where Galchev serves as board chairman, declined to comment, as did Uralkali’s press service.
CTC Media
The Bloomberg-Russia-US Equity Index of most-traded Russian stocks in the U.S. slumped 0.8 percent on its fourth day of declines as RTS futures gained 0.2 percent in U.S. hours. The Bloomberg Russia-US gauge slumped to a two-week low, capping the longest stretch of declines since May. CTC Media Inc. (CTCM), the Russian television holding company, plunged 9.1 percent to $11.24, the most since November 2011.
The benchmark Micex Index (INDEXCF) lost 0.1 percent to 1,396.43 by 1:25 p.m. in Moscow. The dollar-denominated RTS Index (RTSI$) fell 0.3 percent to 1,3337.05.
The Market Vectors Russia ETF (RSX) dropped 0.8 percent to $26.50 yesterday, while the RTS Volatility Index, which measures expected swings in futures, was unchanged at 23.54 today.
United Co. Rusal (486), the world’s largest aluminum producer, dropped 0.4 percent to HK$2.64 in Hong Kong trading. The MSCI Asia Pacific Index gained 0.5 percent.
To contact the reporters on this story: Ksenia Galouchko in Moscow atkgalouchko1@bloomberg.net; Lyubov Pronina in London at lpronina@bloomberg.net
To contact the editor responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net