UPDATE 1-Chile's SQM cuts investment as potash price war looms

Wed Aug 28, 2013 10:23am EDT
 
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SANTIAGO Aug 28 (Reuters) - SQM, the Chilean fertilizer, iodine and lithium producer, is cutting its planned spending for this year and said it will invest even less in 2014, in the wake of the dismantling of one of the world's two big potash cartels.

Russia's Uralkali quit the Belarusian Potash Co (BPC) in July, heralding a price war for the key crop nutrient and spooking potash producers around the world.

Shares in SQM have slumped about 30 percent since then. The company, which had just under 3 percent of global potassium chloride sales in 2012, said late on Tuesday that it was not yet possible to give a reliable estimate on the effects of Uralkali's move on prices.

The bleak outlook comes on top of a difficult quarter for SQM, which reported overall sales slipping for the three months to June and sharply lower net profit, down 44 percent from a year ago to $107 million.

"We expect capital investment for 2013 to reach around $400 million, below the $500 million estimated previously," SQM said in its results statement.

"SQM is still considering what its capex will be for 2014, however it is anticipated that the expenditure will be significantly below 2013."

The company has ploughed significant sums into increasing production in recent years, including a new potassium nitrate plant and a 40 percent increase in potassium chloride output in the last three years.

Analysts at Chile-based brokerage LarrainVial, cutting their stance on SQM to 'sell' in the wake of the potash dispute, estimated that existing pressure on SQM's margins and the Russian situation could result in realized prices for potassium chloride in 2014 of around $300 a tonne for the company, compared to its previous forecast of $471.

SQM's B series shares were trading 1.25 percent lower on Wednesday morning, underperforming a broadly flat blue-chip IPSA stock index.