Potash market turmoil prompts K+S to cut costs

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German potash maker K+S announced plans on Thursday to cut costs by 500 million euros ($670 million) over the next three years following the collapse of one of the world's two big cartels selling the fertilizer.

Russia's Uralkali, the world's largest potash producer, sent shockwaves through the industry in July by pulling out of its sales alliance with its neighbor Belaruskali, triggering a decline in global potash prices.

"It was and is obvious that the announcement (by Uralkali) caused tangible purchasing restraint on the customers' side," K+S said in publishing quarterly results, adding it was difficult to assess how long the uncertainty would last.

Farmers and potash import organisations across the globe have held off on orders in anticipation of a further drop in prices.

Since the crop nutrient stays in the soil longer than nitrogen fertiliser, farmers can skip a season without sacrificing much of their yields, which makes potash markets volatile.

Earlier this month Canadian rivals Mosaic and Agrium Inc as well as Israel Chemicals (ICL) posted lower profits as uncertainty in fertilizer markets prompted many buyers to delay crop nutrient purchases.

Solid Savings Programme

Last month sources familiar with the matter said that K+S's supervisory board was discussing plans for cost-cutting measures.

"Our objective is to increase the international competitiveness of K+S in a sustainable way," Chief Executive Norbert Steiner said in a statement on Thursday.

The new programme will contribute about 150 million euros of savings in 2014, K+S said, which leaves 350 million of cost-cuts to be spread over 2015 and 2016.

Last year the company made an operating profit of 804 million euros on revenue of 3.94 billion euros.

Shares in the company, which have fallen 40 percent in the past six months, were up 2.5 percent at 21.06 euros at 0845 GMT, when the main German market index was up 0.9 percent.

K+S said it now expected to report adjusted earnings before interest and tax (EBIT I) of more than 600 million euros this year on revenues unchanged at around 3.94 billion.

In August it scrapped its forecast of a rise in operating profits following Uralkali's announcement. Analysts in a Reuters poll have forecast a profit of 673 million euros.

In the third quarter EBIT I slid by 26 percent to 116 million euros, slightly higher than the consensus forecast of 107 million euros.

"As third-quarter results are above expectations and the new guidance for 2013 is in line with consensus, plus the fact that K+S has published a solid cost savings programme with huge impact already in 2014, there is little reason for the market to cut (its) estimates," Kepler analyst Martin Roediger said.


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