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Q2 potash output decline at Uralkali indicative of industry supply cuts

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Q2 potash output decline at Uralkali indicative of industry supply cuts

Second-quarterpotash production at PJSCUralkali fell year over year to 2.5 million tonnes from 3.0 milliontonnes, the Russian miner said July 8, in another sign the top global producersare scaling back output in a bid to resuscitate battered prices in the cropnutrient.

Uralkaliproduced 5.1 million tonnes of potash in the first half of the year, down from5.7 million tonnes over the first six months of 2015, mirroring lower output atother big producers.

Brazil and China: Lowerdemand, more local production

Potashprices have fallen sharply in recent years, as new supply entered the marketand imports from key consumers Brazil and China slowed.

Restrictionson bank lending forced Brazilian farmers to spend less money on crop additives,while China has been reducing its reliance on global potash suppliers byboosting its production at its domestic and overseas controlled mines.

TheAsian nation is expected to meet nearly two-thirds of its fertilizer demand throughits own controlled supply in 2016, according to London's Financial Times.

As aresult, the spot f.o.b. Vancouver potash price hit US$239 per tonne in earlyJuly, according to information from Potash Corp. of Saskatchewan Inc., compared to US$435per tonne at the start of 2013.

Seaborne producers respondwith production cuts

Potashminers have been seeking to limit losses by cutting their own output.

PotashCorp. curtailed supply from its Allan and Lanigan mines at the start of the year, while fellowNorth American producer MosaicCo. said last year that production would be lower after it extendedmaintenance at its Colonsay mine in Saskatchewan, and this year lower 2016 output.

AtUralkali, the world's biggest producer by volume, production has been hit bythe flooding of its Solikamsk-2 mine. The company mined 11.4 million tonnesof potash in 2015, down from 12.1 million tonnes the year before.

Burgeoning supply disruptive

Producersmay be fighting an uphill battle, as millions of tonnes of new production dueto start in coming years could disrupt the market, according to CRU, afertilizer consultancy.

Fertilizerdemand should increase to 72 million tonnes by 2020; but global nameplate potashproduction capacity per annum could expand by a quarter to 101.2 million tonnesby that time. If some of the less-certain projects are realized, such asBHP Billiton Group'sJansen, globalcapacity could reach nearly 120 million tonnes by 2030, according to theconsultancy.

Newgreenfields mines include K+SAG's Legacy mine in Canada, while Potash Corp.'s mine will rampup to 6 million tonnes of output — approximately 10% of global demand — in 2017.

Alsonext year, newcomer EuroChemMineral Chemical Co. OJSC is expected to bring its mine into initialproduction, while state-owned Turkmenkhimiya is expected to begin fullcommercial production from its 1.4 million tonnes per year Garlyk mine from2017.