Potash prices declined
Previously in this series, we saw that Uralkali, one of the industry’s largest potash producers, reported a 28% revenue decline in 1Q16 compared 1Q15. This was primarily driven by lower average realized prices of potash in the export market (VAW), which stood at $196 per metric ton.
Why did prices decline?
The average realized prices of potash fell due to pressure from the supply side as well as the demand side. On the supply side, many producers have increased their capacities faster than demand over the years. On the demand side, the company stated that China, Brazil, India, and the US delayed their purchases as they drew down on inventory buildup in 2015.
Uralkali’s management added that potash demand also suffered due to drought conditions in Southeast Asia and Europe. Demand also slowed as purchasers opted to utilize just-in-time purchasing. This may also imply that customers in Europe are anticipating a further price decline in potash.
According to the company, demand in Brazil continued to improve during the first half of 2016. Plus, demand rebounded in the US in April.
What does this mean?
Because potash is a commodity product, Uralkali’s demand can be used as a precursor to the upcoming earnings season in July for other producers. Based on Uralkali’s claims, we should see the sales volumes for PotashCorp (POT), Agrium (AGU), Intrepid Potash (IPI), and Mosaic (MOS) take a hit in their upcoming quarter’s earnings.
In the final part of this series, we’ll discuss Uralkali’s outlook for potash demand in 2016.