Why potash stocks could be a winner for investors in 2014

1 2 3 4 5
Part 4
Why potash stocks could be a winner for investors in 2014 PART 4 OF 5

Why Uralkali’s 2013 surprise sets up a 2014 potash recovery

Taking back market share

Uralkali’s switch to a volume-over-price strategy is a signal that it wants its market share back—not really to gain market share. While Uralkali has maintained its price-over-volume strategy, other producers have benefited from its approach. So Uralkali’s move to increase volume signaled to other producers that they should back away and do their part to maintain prices. Of course, other producers aren’t going to discuss this in their presentations.

Why Uralkali&#8217;s 2013 surprise sets up a 2014 potash recovery

Interested in POT? Don't miss the next report.

Receive e-mail alerts for new research on POT

Success! You are now receiving e-mail alerts for new research. A temporary password for your new Market Realist account has been sent to your e-mail address.

Success! has been added to your Ticker Alerts.

Success! has been added to your Ticker Alerts. Subscriptions can be managed in your user profile.

Increased competition

Note that we could have said other producers “took advantage” of Uralkali’s price-over-volume strategy. Yet this might not necessarily be the case, since Canpotex and other major producers’ market could have grown out of increased competition and available capacity, as well as weak overall demand.

Operating rate

In one of Mosaic Co.’s (MOS) presentations, the company showed that the potash industry’s operating rate had slumped to levels lower than those seen in 2009. Operating rate is a useful measure of industry competitiveness in an oligopoly. If operating rate is low, assuming companies try to match production to shipments, competition tends to be high, as companies try to cover their fixed costs. This results in low potash prices—and vice versa.

Factors for low rates

A buildup in excess supply driven by capacity increases over the last few years amid favorable potash prices, and combined with unusually weak demand, led to a low operating rate. Weak demand was caused by slower economic growth and food inflation in emerging markets, a weaker Indian rupee that increased Indian buyers’ expenses, and unfavorable government subsidies.

Naturally, prices had fallen. Understandably, Uralkali said a prolonged decline in potash prices also made the price-over-volume strategy difficult to implement due to increased competition.


Please select a profession that best describes you: