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Russia’s Uralkali cuts potash output forecast

Moscow | Reuters — Russia’s Uralkali, the world’s largest potash producer, cut its 2014 production forecast by eight per cent on Thursday, opting to focus on price rather than sales volume.

Prices of the fertilizer slumped almost a year ago after Uralkali quit a powerful trading alliance with Belarus in order to boost output.

“Our strategy is not ‘volume over price’ or ‘price over volume,’ it is a revenue maximization strategy,” Uralkali CEO Dmitry Osipov told a conference call on first-quarter results.

Uralkali has cut its 2014 production forecast to 11 million tonnes from 12 million, Osipov said, adding: “We believe that, with these 11 million tonnes, we will achieve this goal (of revenue maximization).”

The so-called “price over volume” strategy had allowed global potash producers to support prices for years before the system started to crack and was finally done for by Uralkali’s breakup with Belaruskali.

“Since the potash market has reached a greater stability, the company is seeking to maximise its revenue through stimulating prices,” Uralkali said.

It posted a 17 per cent year-on-year increase in first-quarter revenue to US$862 million on the back of production growth, albeit at lower prices.

“Robust demand enabled us to sell a large volume, which we produced working at almost full capacity,” Osipov said. Sales volumes were up 63 per cent to 3.1 million tonnes of potassium chloride (KCl), while the average export price was down 31 per cent to US$215 per tonne.

Rebuilding stocks

Uralkali said that since January customers had begun rebuilding their depleted stocks of the fertilizer ahead of the Northern Hemisphere’s spring sowing season.

“We expect the momentum to continue,” said Oleg Petrov, Uralkali head of sales. The company is maintaining its forecast that global deliveries of potash will hit a new record of 58 million tonnes this year, up seven per cent, he added.

Uralkali expects to sign a new contract with China, one of the world’s main consumers of potash, in the fourth quarter, he said.

Currently, Uralkali has a contract to supply China with 700,000 tonnes of potash in the first half of this year, and additionally provides spot supplies by rail running at about 60,000 tonnes per month.

In April, Belarussian President Alexander Lukashenko met with tycoon Dmitry Mazepin, whose firm Uralchem has a stake in Uralkali, and signalled that he was interested in ending a dispute that has hurt both sides, but did not say if the alliance could be restored.

Asked about the prospects of this happening, Osipov told the call: “The meeting was positive, but there are no answers yet; we’ll see.”

— Reporting for Reuters by Polina Devitt in Moscow.

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