On December 24, several media outlets reported that the Federal Antimonopoly Service (FAS) recommended that Uralkali and Silvinit increase the price Russian complex fertiliser producers pay for potassium chloride by 20%, to RUB 4,750/t, as of January 1, 2010.
According to information obtained from the FAS, the Service made no such recommendations. Fertiliser producers see the release of such information by the media as an attempt on the part of monopoly potassium chloride producers to put pressure on its consumers and the FAS during the process of negotiating the potassium chloride price for 2010.
That same evening, the official FAS website published the results of its December 21 review of alleged violations of antimonopoly law by potassium chloride producers. According to its official statement, the FAS found that Silvinit, Uralkali and Mineral Trading violated antimonopoly law and also announced that the 2009 potassium chloride price for fertiliser producers fixed at RUB 3,955/t is unreasonably high. The Antimonopoly Service believes that the economically justified chloride potassium price in 2009 should have been RUB 3,755/t.
It took the FAS a long time to reach a decision on this matter, but its decision was thoroughly considered and signals to potassium chloride producers that setting economically unreasonable prices for monopoly products is unacceptable.
Producers of complex fertilisers support this decision by the FAS. However, even after the FAS published its opinion, potash producers continue to insist on raising prices in Q1 2010 to RUB 4,750/t (an increase of 26.5%). They also plan to continue increasing prices in the future. This type of monopoly price increase is unreasonable. When the FAS considered the case, it found that it costs RUB 2,375/t to produce potassium chloride. When the price is increased to RUB 4,750/t in 2010, the profitability of its production will exceed 100%, which is totally unacceptable under current conditions.
Fertiliser producers have not raised the price domestic farmers will pay for complex mineral fertilisers in 2010. The margin on complex fertilisers was already thin in 2009, and if the price for raw materials is increased in 2010, fertiliser producers will be forced to suspend production.
Interestingly, although potassium chloride producers insist on higher prices in the domestic market, they have cut prices in half on supplies exported to China. Earlier this year, most major importers also obtained considerable discounts from Russian producers. That is why independent producers interpret Uralkali and Silvinit’s higher domestic prices on potassium chloride as an attempt to compensate for their losses in foreign markets at the expense of domestic producers.