Uralkali's plan to boost sales volumes, lower prices decried as 'single dumbest thing that I've ever seen' by Potash Corp. CEO, who notes customers deferred purchases following Uralkali's strategy shifts

Allison Oesterle

Allison Oesterle

Oct 25, 2013 – Bloomberg LP

VANCOUVER, British Columbia , October 25, 2013 () – (Updates share price in 10th paragraph.)

Potash Corp. of Saskatchewan Inc. Chief Executive Officer Bill Doyle said rival potash producer OAO Uralkali’s decision to boost sales volumes at the expense of prices has been self-destructive after the price of the commodity slumped and customers deferred purchases.

Russia’s Uralkali, the world’s biggest supplier, upended the potash market in July when it quit a marketing joint venture with its competitor in Belarus and said it would sell the fertilizer at lower prices.

Potash Corp. yesterday posted lower-than-expected third- quarter revenue and cut its full-year earnings forecast. Doyle said the Saskatoon, Saskatchewan-based company remains committed to Canpotex Ltd., a joint venture that markets potash from the largest North American producers and seeks to support prices at the expense of volume. He said Uralkali’s policy is a failure.

“It’s really a sort of an amateur approach,” he said on a conference call with analysts. “We have seen a lot of people over the years in charge of billions of dollars of assets in the fertilizer world do some pretty silly things but this is probably the single dumbest thing that I’ve ever seen.”

The press office of Berezniki, Russia-based Uralkali declined to comment today.

The global potash market was dominated by the two marketing groups until Uralkali’s surprise announcement on July 30 that it would go it alone and increase output to seize a greater market share. The move sent shares of potash companies tumbling on speculation that prices would plunge. Potash Corp. said yesterday that the average price it got for its potash fell 28 percent in the third quarter from a year earlier.

Market Psychology

Doyle, 63, who has been CEO at Potash Corp. since 1999, said yesterday that he had talked to customers who regarded Uralkali’s strategy as “irresponsible.” He said some buyers have been forced to take writedowns on their inventories.

“The basic problem that they had was they didn’t understand market psychology,” Doyle said of Uralkali. Markets “yearn” for “stability and certainty, not upheaval.”

Doyle said potash inventories are “very low” and industrywide shipments will climb to 55 million to 58 million tons next year from 53 million to 54 million tons in 2013. Potash Corp. mines are running at about 64 percent to 64.5 percent of capacity this year, he said. The company’s dividend isn’t affected by lower prices and volumes, Chief Financial Officer Wayne Brownlee said on the call.

CEO Arrest

Potash Corp.’s third-quarter net income fell to 41 cents a share from 74 cents a year earlier. Sales declined 29 percent to $1.52 billion, missing the $1.57 billion average of 20 analysts’ estimates compiled by Bloomberg. The shares dropped 0.1 percent to C$32.37 at 10:08 a.m. in Toronto.

Prices had already been in decline for six quarters before Uralkli’s move, said Robert Winslow, a Toronto-based analyst at National Bank Financial who has a hold rating on Potash Corp. stock.

“There’s no reason to point fingers here in my view, this is not about Uralkali,” he said by phone. “The North American oligopolists don’t want to sell” at current prices.

A dispute between Uralkali and state-owned Belaruskali has spiraled since their venture broke up at the end of July. Uralkali CEO Vladislav Baumgertner has been detained in Belarus since his arrest in August and has been charged with abuse of office. Meanwhile, Belarus President Aleksandr Lukashenko is demanding that billionaire investor Suleiman Kerimov sell the 33 percent stake in Uralkali he holds with his business partners.

“Their owner looks to be forced to sell his shares in the company,” Doyle said. “I’m sure he didn’t have that in mind when he came up with this scheme.”

--With assistance from Christopher Donville in Vancouver. Editors: Simon Casey, John Viljoen, Amanda Jordan

To contact the reporter on this story: Gerrit De Vynck in Toronto at gdevynck@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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