Belaruskali: Russian potash co downplays India's bid

Russian potash-major, Uralkali, is skeptical about recent Indian and Chinese moves to acquire stakes in its Belarusian marketing alliance partner, Belaruskali.

“We have no problem (if they bid for Belaruskali). But right now, it is 100 per cent Belarus Government-owned and they do not want to sell any controlling stake. So Indian or Chinese firms can only be portfolio investors, which will not change the basic structure of our trading alliance with Belaruskali,” Mr Vladislav Baumgertner, CEO of Uralkali, told visiting Indian journalists here.

Uralkali and Belaruskali together own Belarusian Potash Company (BPC), which is the global marketing arm for the muriate of potash (MOP) produced by them.

Potash Cartels

In June, Uralkali snapped Russia's other potash-maker, Silvinit. It resulted in a merged entity with a total MOP capacity of 10.6 million tonnes (mt) in 2010. Belaruskali's 9.2 mt would add up to a capacity of 19.8 mt for the BPC-mediated alliance, just next to the 23.8 mt controlled by Canada's Canpotex (see Table). Uralkali plans to take its capacity to 11.5 mt this year and 13 mt by 2012 through de-bottlenecking and modernisation. “This year, we will sell 11 mt, including 9.2 mt of exports, while Belaruskali may produce nine mt and export 7.5-8 mt. The roughly 17 mt routed through BPC would make up over 42 per cent of the global MOP exports (excluding Canadian sales to the US),” said Mr Baumgertner.

BPC has a 45 per cent share of India's MOP market, ahead of Compote's 18-20 per cent. “India's MOP market is growing at 5-7 per cent annually, as against the global rate of 3-3.5 per cent. Today, it is importing six mt, which might reach 10 mt in the next 7-9 years,” Mr Baumgertner said. India, according to him, will soon displace China as the ‘benchmark' market for potash. This is because India has no local deposits, whereas China has trebled its own MOP output to six mt in the last seven years and which may increase further to eight mt (out of its consumption of 11 mt). In this scenario, “we would prefer supplying on an annual contract basis with India, while it would be semi-annual or quarterly pricing in the case of China”. Chinese imports are likely to diminish and will increasingly take place through rail on spot purchases, he added

No cost-plus formula

While favouring annual contracts, Mr Baumgertner, however, ruled out linking potash pricing with production costs (which could also provide for a ‘reasonable' margin). Indian firms have contracted 1.2 mt of MOP with BPC for supplies over August to March at a landed price of $ 490 a tonne. This is as against Uralkali's own basic production cost of $61 a tonne, which is, however, exclusive of non-factory administrative or distribution and freight expenses.

“We follow a global pricing policy that is determined by supply-demand balance and not cost of production. Currently, all potash producers are operating at near full capacity and the options for brownfield expansions are limited. Greenfield investments will not come unless manufacturers get a net-back (ex-factory) price of $450-500 a tonne,” claimed Mr Baumgertner. Uralkali is looking at constructing a new mining-cum-ore processing facility to produce 2.5 mt of MOP. That would require an investment of $2.5 billion (minus costs of infrastructure such as rail, gas supply and other utilities) and at least five years for commissioning, said Mr Yevgeny Kotlyar, Director of Operations at Uralkali.

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