LONDON (ICIS)--Uralkali’s net profit for 2013 fell by 58% year on year to $666m, as market oversupply and weak demand during the year drove the Russia-based fertilizer producer to move to prioritise volume over pricing, it said late Thursday.
The company, whose breakaway from potash cartel Belarusian Potash Company (BPC) in July last year has sent potash prices spiralling, said full-year net revenues had fallen 20% compared to 2012, to $2.67bn.
Earnings before interest, taxes, depreciation and amortisation (EBITDA) fell 31% over the same period, to $1.63bn, the company added.
Uralkali said financial results had been impacted by subdued demand and oversupply from the start of 2013, leading to low capacity utilisation across the industry and price falls as competition intensified.
CEO Dmitry Osipov said the company’s market share in the first half of the year had been impacted by its strategy of pursuing price over volumes, and conditions had improved during the second half of the year, after it had shifted to volume-based marketing.
“Uralkali’s adherence to a rigid price-over-volume strategy in [the first half of] 2013 resulted in a significant decrease in the company’s market share, as other producers sought to gain market share through aggressive pricing. This had a negative impact on both the company’s operational and financial results,” Osipov said.
“We saw some improvement in the company’s results [following the strategy shift] and the market situation in [the second half of] 2013 and expect to build on this momentum in 2014,” he added.
Net profit had been impacted by lower potash prices, losses from revaluation, management fees and one-off expenses. Increased capacity utilisation from August 2013 and cost optimisation allowed the company to keep production costs at around $58/tonne, Uralkali added.
Potash output rose 10% compared to 2012 following the capacity ramp up in the closing months of the year. Work is continuing on the development of the Ust-Yayvnisky potash mine, which is due online in 2020 to offset declining productivity at the Berezniki-2 mine, Uralkali added.
The company estimated potash demand in 2013 at 53m-54m tonnes, a 5-7% increase on the previous year on the back of a slower-than-expected recovery, and that demand will reach 56-58m tonnes this year, driven by demand from key markets and emerging regions.
“Brazil, China, Southeast Asia, and India will be a major factor. After delaying [second-half] 2013 contract deliveries, China has now settled contracts with major potash suppliers for the first half of 2014. Previously cautious buyers have started re-entering the market, providing a firmer base for spot pricing. The start of [second-quarter] 2014 saw the contract with India concluded,” the company noted.
“We remain confident in the strong potash market fundamentals. As the global economy recovers, potash consumption should reach a more balanced level ensuring higher yields for agricultural producers,” added Osipov.