K+S 2012 sales flat but profit may fall on weaker demand

15 March 2012 15:37  [Source: ICIS news]

By Deepika Thapliyal

LONDON (ICIS)--K+S expects 2012 sales to remain flat year on year but earnings could fall moderately because of weaker demand for its two major products, the German potash and salt maker said on Thursday. 

Demand for potash has been weak over the last few months, as potash buyers are cautious and have been delaying purchases since the fourth quarter of last year.

Also, its de-icing salt business is seeing a drop in demand because of a mild European and North American winter, which has resulted in high inventories that will carry forward through 2012.

Potash buyers are waiting on the sidelines because of delay in the conclusion of 2012 supply pacts in China and India, which are the world’s biggest importers of the fertilizer.

The Chinese and Indian contracts form the benchmark for prices across other global markets. Negotiations are currently underway, but no timeline for the conclusion has been confirmed yet.

The delay is adding pressure to potash prices in Southeast Asia and Brazil, the company said. K+S is shipping small potash cargoes to Brazil at $520/tonne (€400/tonne)CFR (cost and freight), which is at a $30/tonne discount to the price concluded last year.

Despite the weak demand, K+S does not plan to undertake production cuts for potash as of now, said Joachim Felker, a board member who oversees the company’s fertilizer business.

But if the weak demand situation continues, the company will bring foward maintenance plans for some of its potash plants, which are scheduled for the summer, Felker said.

K+S sees global potash sales at 58m tonnes in 2012, compared to an estimated 58.7m tonnes in 2011.

In the company's de-icing salt segment, a mild winter has impacted business and will continue to have a bearing on sales in the coming year, K+S said.

“As a result of the extraordinary weak start to the de-icing salt business, a significant reduction in sales volume is expected [in 2012]. This will mean a moderate reduction in revenues and strong fall in operating earnings,” said K+S board chairman Norbert Steiner at an analyst conference following the company’s results

K+S will react to the weaker demand in its salts business by “breaks in production”, he said. The de-icing salts business is likely to recover in 2013, the company said. 

Its adjusted fourth-quarter earnings from continued operations rose by 3% year on year to €153.3m as trade slowed in its fertilizer business segment on the back of the sovereign debt crisis, the company said earlier on Thursday.

Revenues for the fourth quarter grew by 1.2% to €1.30bn compared with the same period a year earlier, K+S said.

($1 = €0.77)

By: Deepika Thapliyal
+44 208 652 3214

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