Research Notes

In recent years, demand for mineral fertilizers has been consistently on the rise due to a growing shortage of cultivatable areas and the need to boost crop yield. The most positive trends have been observed in the potassium fertilizer segment. The upside driver for potassium fertilizers consumption continues to be rising demand on the part of developing countries, stimulated by state programs aimed at expanding the agricultural sector and compound fertilizer production facilities.

Owing to the unique nature of potassium salt fields and high barriers for entry into the potassium fertilizers industry, a situation has taken shape whereby most fertilizer-consuming countries are forced to meet their needs by importing potassium chloride. On the contrary, countries with substantial resource bases export the lion's share of potassium fertilizers, which they turn out by tapping their own deposits, due to modest domestic demand.

Thanks to this imbalance, potassium fertilizer prices have surged over the past couple of years and are unlikely to decline in the long term.

Russian potassium fertilizer producers which export over 80% of their potassium chloride output stand to gain a bundle from the current market conditions. Domestic potassium fertilizer producers have the opportunity to reap mega profits owing to the high price differential on external and domestic markets coupled with low production costs and the lack of fertilizer export duties.

Russian potassium fertilizers manufacturers have no intention of resting on their laurels and have ambitious plans to conquer new market niches by boosting fertilizer output and rolling out more efficient sales networks.

This research note is about two largest potassium fertilizers of Russia: UralKaliy and Silvinit. At present, their aggregate share on the global market equals 18%, but the companies intend to raise it to 26%.

Based our calculations, into which we factored current trends on the global potassium fertilizer market and the companies' plans to ramp up output and strengthen their positions on the international market, we assign a Buy recommendation to UralKaliy and Silvinit shares.

Anastasia Sarapultseva

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