Daily analyst comments

Igor Artemyev, the Head of the Federal Anti-Monopoly Service (FAS), reported that his agency supports the Federal Customs Service proposal to impose an 8.5% export duty on potash chloride. The final decision on the issue is to be made by a governmental commission, chaired by First Deputy Prime Minister Igor Shuvalov. Artemyev went on to say that FAS continues to support the duty, even though Russia’s top potash producers, Silvinit and Uralkali, have recently lowered their prices for domestic customers.

The news that the export duty could be forthcoming first surfaced in early March. It was reported that the government was considering a 15% duty, while subsequent reports cited a figure between 5%-6%. According to our estimates, the imposition of export duty on potash chloride will have rather serious negative implications for Russian potash makers, which generate at least 80% of revenue on exports. In our view, the likelihood that the duty will be imposed is high. That the duty is backed up by such an influential agency as FAS doesn’t add any optimism either. However, in our view, should the duty be eventually levied, the rate will be at 5%-6% rather than 8.5%, or even 15%.

We turn investor attention to a surge in demand for potash fertilizer on the global market, which will unavoidably drive growth in potash production levels and potash capacity utilization in 2010. According to preliminary production numbers from Silvinit for the first quarter of 2010, potash chloride output soared 120% y-o-y to 1.14 mn tons. Investors are therefore advised to take advantage of a temporary correction in potash company shares in order to enter a postion at a lower cost. Our favorite among Russian potash producers is Silvinit. Our official rating and target price for Silvinit shares are under review for a possible upgrade.