Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
In July last year Uralkali CEO Vladislav Baumgertner blasted the global potash market wide open sending stock prices in the sector tumbling and projects back to the drawing board.
Baumgertner’s breakup of the Belarus-Russia potash bloc – which cost him his job and some jail time – was supposed to move potash from a clubby system of tightly controlled global supply and set prices to an open market where volume and cost-based pricing is key.
Baumgertner forecast at the time the price of potash would fall 25% to below $300 a tonne in short order.
The price did tank, but not by as much as feared and recently potash prices have been creeping back up.
At the same time global shipments of the soil nutrient rebounded significantly this year.
Expectations was that Russia and Belarus would eventually patch things up and the potash potentates could go back to business as usual.
But Baumgertner’s successor at Uralkali Dmitry Osipov on Tuesday in an interview with the Wall Street Journal poured cold water on the idea saying “there have been no talks since April and none are planned”:
“Under what conditions should we build this new marketing vehicle? Where should be the headquarters; what should be the proportion; what should be the aim; what should be the goal? There are no answers to these questions.”
The improvement in volumes and pricing have also made recreating the Belaruskali-Uralkali (BPC) marketing operation less pressing.
Shipments could jump as much as 7% this year to 58 million tonnes according to Scotiabank while Osipov sees deliveries reaching as much as 60 million tonnes, boosted by strong sales in North America, record fertilizer application in Brazil and a modest pick-up in demand from palm oil growers in Malaysia and Indonesia.
Producer inventories across North America fell 18% below the five-year average in June, but robust sales from North America did not stop Uralkali regaining 23% global market-share in the first half of 2014, up from 17% a year ago.
Uralkali recently signed a deal with Brazil at $380 a tonne which compares to a spot price of $310 per tonne in July from the Vancouver port.
However, broad-based price increases may await negotiation of a new contract price with China for early 2015.
China’s sovereign-wealth fund took a 12.5% stake in Uralkali September last year.
This could make price negotiations between China and Canpotex – the North American marketing and distribution arm of the big three producers Potashcorp, Agrium and Mosaic – more difficult.
Nevertheless a 10% hike on today’s $305 CFR China price — setting a new higher floor – is widely expected.
