What is potash and why is it important?

Potash is a vitally important element, necessary for the functioning of all living organisms. It is a natural component of soils and, along with phosphorus and nitrogen, an irreplaceable nutrient for plants and agricultural crops. Balanced plant nutrition can only be ensured by regular and timely application of these three main macronutrients.

Why is there growing demand for potash

Uralkali capitalises on long-term market fundamentals. Demand for potash is expected to be stable in the long term, as agriculture remains the key source of food, an important provider of fibre for the textile industry and biofuel for the world’s constantly growing population.

  • Demand for higher/optimal yields
  • Increasing global population
  • Decreasing arable land area
  • Income growth in developing countries
  • Biofuels and best agronomic practice

Why is the potash supply limited?

  • Substantial barriers to entry
  • Few top players
  • Mineral scarcity
  • No other products can substitute potash
  • High CAPEX requirements
  • High industry concentration

Growing population vs Arable land per capita

Removal of potash from the soil

Why do plants need potash?

  • Increases the nutrient level, improves the taste, colour and structure of fruits
  • Improves resistance to crop diseases
  • Improves resistance to drought and frost
  • Increases the rate of nitrogen assimilation

Why do farmers use potash?

  • Consistently high yield
  • Maximising the efficiency of complex fertilisers
  • Consistently high product quality
  • Maintaining the natural balance of minerals and minimum impact on the soil

Thus potash, when properly used, does not pollute the environment and does not reduce the quality of natural drinking water.

Why mankind cannot do without potash

The world's population is growing, while the arable land per capita is declining, so people feel the need for higher yields.

Scientific studies show that a maximum yield with a consistently high quality of crop can only be achieved by providing plants with all necessary nutrients in the required amounts, including potash.

Why do people need potash?

  • Improves the supply of oxygen to the brain
  • Involved in the transmission of nerve impulses
  • Compounds activate enzymes
  • Normalises the heart rhythm
  • Beneficial effect on kidneys
  • Regulates the water balance in cells and tissues
  • Regulates metabolic processes
  • Beneficial effect on skin
  • Regulates the acid-base balance of blood
  • Prevents accumulation of sodium in cells
  • Stimulates the removal of toxins and chemical waste from the body
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Potash demand in 2015

Challenging potash fundamentals affected potash demand in 2015.

A number of factors had an impact on the potash market in 2015, including inventory draw down over the first quarter, currency headwinds, continued macroeconomic volatility and limited credit availability in some regions. In 2015, agriculture commodity prices were on a downward trend due to surging global crop supplies, the slump in crude oil prices and US$ strength. Low agriculture returns became a significant concern for global farmers and were impacting farmer purchasing decisions throughout the year. Demand in all spot markets was under pressure throughout the year. A combination of weak demand in emerging economies due to strong US$, weaker farmer balance sheets and strong competition among suppliers resulted in significant pressure on potash prices over 2015. By the end of 2015, spot prices in major markets fell below the Chinese and Indian contract prices. With potash demand not recovering in 2H 2015, the potash industry faced a wave of production cuts and advanced turnarounds being announced for Q4 2015.

Shipments to China were very strong throughout the year. China outperformed other markets in terms of volumes. Potash imports reached 9.4 million tonnes, up 18% on the previous year. However, the introduction of 13% VAT, low oilseed and cereal prices and slowing economic growth limited potash consumption in the fourth quarter of 2015. With strong buying over 2015, which followed exceptionally large 2014 buying, potash inventories hit an estimated record 6 million metric tonnes by the end of 2015.

In India, subsidy issues and rupee depreciation against US$ remained a challenge for potash demand growth in 2015. While potash imports increased by 15% in 1H 2015 compared to the corresponding period in the previous year, the second half of 2015 was much more challenging. A weak monsoon season slowed the movement of potash around the country. In Q3, India was trying to renegotiate the contract prices, citing sharp devaluation of the rupee as a major driving point of the renegotiations. In Q4, importers started delaying shipments. By the end of the year, potash inventories are estimated to have increased to 1.1 million tonnes. Full-year demand is estimated to have declined to 3.9 million tonnes compared to 4.5 million tonnes in 2014.

Local currency weakness and palm oil price volatility negatively impacted demand and prices in South East Asia. The devaluation of the Malaysian ringgit and Indonesian rupiah has driven local prices of potash higher for farmers and hurt demand in the two biggest markets in the region. In Q4, tenders were delayed due to expectations of further price erosion, which discouraged customers from buying potash. Potash imports in 2015 are estimated at 9.3 million tonnes, decreasing 9% over 2014.

In Latin America a multitude of factors put downward pressure on farmer demand during 2015. Some of the factors that negatively affected demand in the region included limited credit availability, weak crop prices, currency volatility versus the US dollar and inventory destocking in Q1 2015. In Brazil, volumes remained dismal, also due to inventory draw downs, specifically in 1H 2015. Potash demand in the region is estimated to have fallen by 3-4% to 11.3 million tonnes.

The North American market has been under heavy pressure for nearly all of 2015. Potash demand was below historic averages mainly due to a delayed planting season, high potash price volatility because of escalating competition, and lower corn planted acreage. Lower demand in neighboring major markets (incl. Brazil) put heavy downward pressure on potash prices. The US market saw its price premium to other markets melt away in 2015. Demand is estimated to have contracted 23% year-on-year to 8.0 million tonnes.

EMEA & FSU demand is estimated to have been flat year-on-year in 2015 and totalled 12.0 million tonnes. The potash demand drop in Western and Central Europe was offset by a demand increase in Africa & FSU.

2015 global potash demand is estimated to have contracted 3-4% compared to 2014 and totaled approximately 61 million tonnes. The combination of large supply and potash demand weakness put the market into imbalance and was likely to have resulted in lower operating rates in 2015.

Potash prices slumped in 2015 (year-on-year dynamic)

Global potash demand declined in 2015

2016 outlook

Global potash demand for 2016 is expected to range between 58-60 million tonnes compared to 61 million tonnes last year.

Owing to high end-year inventories, Chinese demand is expected to be below the 2015 record level of 17 million tonnes.

In India, the potash subsidy is largely unchanged for the 2016/2017 financial year. The government may also reduce the maximum retail price, so that farmers are encouraged to buy more potash compared to 2015. However, owing to elevated potash carryover stocks, potash imports are expected to be below the 2015 level.

We hope for a rebound in Brazil potash consumption, which saw a step back in 2015 following many years of sequential increases. However, a rebound could be modest due to slower economic growth, higher end-year inventory (1.4 million tonnes), and credit availability issues.

In South East Asia, importer economics is highly sensitive to changes in FOREX and could limit potential upside to potash demand in 2016. We believe the pace of dollar strengthening is likely to be slower and more moderate in 2016. Palm oil prices have shown strength recently and may support potash demand growth in the region.

We expect a slight rebound in EMEA & FSU demand driven by demand growth in Eastern Europe. Demand upside in Western Europe may be limited due to high potash carry-over stocks.

In North America, lower nutrient levels after an extremely weak 2015 could be the catalyst for potash demand in 2016.

Среднемесячные спотовые цены на стандартный KCl, FSU FOB / долларов США за тонну

Снижение цен на основные сельскохозяйственные культуры / долларов США за бушель

Export sales

The Company's export sales were adversely affected by the challenging potash market environment and diminishing production capability in Solikamsk-2 mine.

Vladislav LYAN
Vladislav LYAN Director of Export Sales

Historically, exports account for the majority of Uralkali output. Export shipments accounted for 82% of total Company sales in 2015.

Uralkali products are distributed through a global sales network which combines access to all the main regions of potash consumption with the flexibility to adjust supply to a particular market in response to seasonal fluctuations in demand. Uralkali Trading exports its products to more than 70 countries. Uralkali has a worldwide presence selling its products through Uralkali Trading.

Uralkali’s sales portfolio is balanced between spot and contract markets. Maintaining a balance between spot and contract markets allows the Company to be flexible and to respond to changes in the market quickly.

2015 Uralkali Export Shipments

In 2015, the Company experienced a drop of 12% in potash exports to 9.2 million tonnes.

Uralkali export sales in 2015 reflected the world potash market situation to a large extent: industry destocking, cautious demand environment, currency weakness and macroeconomic concerns in some regions. The year-on-year decline in the Company's export sales also reflects Uralkali’s diminished production capability due to the accident at Solikamsk-2 in autumn 2014.

For 2015, the majority of Uralkali’s deliveries were to China (22%), Latin America (18%), Russia (18%) and South East Asia (14%). We expect to maintain our export market share in line with historic averages.

In 2016, we will continue to implement flexible strategy taking into account market environment.

Export shipments

Domestic sales

In 2015, domestic sales amounted to 2.05 million tonnes, 4% higher than in 2014.

Alexey STRAKHOV Director of Domestic Sales

On the Russian market, potassium chloride (KCl) is mainly used as a raw material in compound (NPK) and mixed fertilisers and other chemical products, as a component of drilling fluids at oil-production enterprises and as a singlecomponent fertiliser for direct application to the soil. Potassium chloride is also used in small amounts in the non-ferrous metals industry and the food industry.

The major domestic consumers of the Company’s products are traditionally compound fertiliser (NPK) manufacturers. KCl supplied to them in 2015 amounted to about 1.77 million tonnes, 12% higher than the previous year.

The major domestic consumers of the Company’s products are traditionally compound fertiliser (NPK) manufacturers. KCl supplied to them in 2015 amounted to about 1.77 million tonnes, 12% higher than the previous year.

The Russian agricultural market has huge potential. Russia accounts for about 10% of the world's arable land, and mor e than half of the land is planted with crops that require increased potash application, including wheat, sunf lower, corn and sugar beet. Total potash consumption by Russian agricultural producers (including consumption of potash as part of NPK) in 2015 amounted to 0.5 million tonnes. Russia consumes a disproportionately small amount of po tash fertiliser compared to other countries with similar climates.

Another group of traditional industrial consumers – petroleum, chemical and nuclear enterprises – bought 0.16 million tonnes of potassium chloride for specific production processes in 2015.

In addition to potassium chloride, Uralkali sold 0.33 million tonnes of enriched carnallite and 0.76 million tonnes of industrial salt on the domestic market in 2015. The main consumers of enriched carnallite are OJSC Solikamsk Magnesium Plant and PJSC VSMPO-AVISMA Corporation, which use it for the production of magnesium.

Uralkali's domestic
Positioning a company as an industry leader presupposes a high level of expertise and social responsibility. Today it is not enough simply to produce high quality products; it is also important to introduce international scientific expertise into the daily practices of farmers, as the end consumers, in order to ensure optimal crop yield. Uralkali is a member of Russian and international associations such as the International Fertiliser Industry Association (IFA) and Russian Association of Fertiliser Producers (RAFP), and serves on the scientific committees of recognised international institutes engaged in applied research in agricultural chemistry such as the International Plant Nutrition Institute (IPNI) and The Fertiliser Institute (TFI).

Domestic pricing

The Company strictly complies with its obligations to ensure non-discriminatory access for consumers of potash fertilisers. In November 2010, the Federal Antimonopoly Service (FAS) of Russia approved rules, according to which, starting from 2011, the potash price for NPK producers is based on the weighted average price on the foreign market with the lowest price before transport and other logistics costs (minimum export price). Since October 2013, prices have been calculated on a monthly basis, enabling the Company to respond promptly to changes in international prices. When calculating selling prices for 2015, NPK producers were provided with an additional discount of US$27 (in rouble equivalent).

Since 1 July 2013, potash prices for Russian agricultural producers have been calculated according to the minimum export price formula in line with FAS recommendations to ensure non-discriminatory access for consumers of potash fertilisers on the Russian market.

When calculating prices for petroleum, chemical and nuclear enterprises, Uralkali also goes by the formula based on the minimum export price.

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