Scientist Running Uralkali Seeks to Avoid Drop in Potash Prices

Jun 10, 2014 12:00 pm ET

June 10 (Bloomberg) -- OAO Uralkali Chief Executive Officer Dmitry Osipov favors stable potash prices as he considers how to manage output at the world’s biggest producer of the fertilizer.

That’s a relief for investors and peers after the company’s decision, under his predecessor, to end a venture with Belarus and ramp up production led to a price slump of about 30 percent.

“We are a responsible market player,” Osipov, 48, said in an interview in his Moscow office. “Market share is important for us, but we don’t want prices to fall. It’s too early to say what utilization rate we will have in the second half.”

Osipov, an academic researcher before rampant inflation in 1993 forced him to seek better paid work in industry, replaced Vladislav Baumgertner, 42, after the breakup of the marketing venture landed the then-CEO in a KGB jail in Belarus. While Uralkali has since stuck to a policy of higher output, running at near full capacity from about 70 percent previously, Osipov is keeping his options open for the second half of the year.

“That’s a shift from what Uralkali was saying before,” Elena Sakhnova, a VTB Capital analyst, said by phone.

Output will probably be 11 million metric tons this year, below the company’s target of 12.5 million tons, Sakhnova said.

“This is a more responsive approach from Uralkali, which is good for the market,” Konstantin Yuminov, an analyst at ZAO Raiffeisenbank, said in a telephone interview yesterday.

Price Slump

Osipov became CEO in December after billionaire Suleiman Kerimov and his partners sold their stakes in the company to OAO Uralchem and billionaire Mikhail Prokhorov’s Onexim Group. That deal offers a chance to revive the tie-up with state-controlled Belaruskali after the demise of its venture with Uralkali last year roiled the $20 billion global potash market.

Potash prices in major markets like Brazil slumped to as low as $310 a ton, from about $440, by December following the venture’s collapse, since recovering to about $350 a ton.

“I am personally not holding any talks with Belaruskali now,” Osipov said, declining to comment on the terms of any restoration. A meeting between Uralchem’s billionaire owner, Dmitry Mazepin, and Belarus President Aleksandr Lukashenko in Minsk “was quite constructive,” he said in the interview on June 4. “I consider it as a very early stage of the talks.”

Uralkali signed a 700,000-ton supply deal with China in January at $305 a ton for the first half. The producer isn’t certain whether a second contract with China will be possible this year, he said.

Ukraine Crisis

Uralkali rose 2 percent to 157.18 rubles in Moscow after the company said it will start canceling 12.5 percent of its shares held as treasury stock, and following the CEO’s comments on production. Its London-traded securities advanced 2 percent.

Shares of rival potash producers also gained. Potash Corp of Saskatchewan Inc. advanced as much as 2.1 percent in Toronto. K+S AG climbed as much as 2.6 percent in Frankfurt.

Osipov doesn’t expect Uralkali to be affected by the crisis in Ukraine as the company’s “shipments across the globe are a matter of food security for countries.” Potash is a form of potassium used by farmers to strengthen plant roots and boost resistance to drought. Global sales, dominated by producers in the former Soviet Union and North America, are valued at about $20 billion a year.

Osipov met Mazepin after moving from a small research firm advising oil companies to head Ural-region petrochemical company Sibur-Khimprom in 2002. Mazepin was then CEO at OAO Sibur. The two have since worked together, with Osipov heading different Mazepin assets, including Uralkali customer Uralchem.

Science Background

Before his move into business, Uralkali’s CEO worked as a junior researcher at the Russian Academy of Sciences’s applied physics institute until 1993, after graduating in the radio- physics faculty of Gorky State University in the Volga region.

His story is a common one, with OAO Eurochem CEO Dmitry Strezhnev and United Co. Rusal CEO and co-owner Oleg Deripaska also transitioning from physics graduate to industry chief.

“When hyperinflation in the country made it impossible for scientists to survive on their salaries as Russia was struggling with the consequences of the USSR’s collapse, I had to quit my academic career to go to business,” Osipov said.

Still, a scientific approach has helped in his new life.

“Education in physics and mathematics disciplines people, develops logic, critical thinking and analytical skills,” he said.