OREANDA-NEWS. March 03, 2010. It may be that the threat of the imposition of an export duty is leverage on Russian potash companies in order to pressure them into more moderate domestic price increases. It is also quite likely that should the duty be levied, the rate could be much lower, possibly at 5%, as it was before May 2009.

Bloomberg reported yesterday that the Russian government had been discussing the imposition of a 15% export duty on potash.

According to our estimates, the imposition of export duties on potash could have rather serious consequences for Russian potash makers, which derive 80% of their revenues from exports. Should a 15% export duty be applied as of 2Q 2010, Uralkali stands to lose USD 218 million in potential revenue in 2010, and USD 367 million more in 2011, and its EBITDA and net income figures should decrease accordingly. Upon the introduction of a 15% export duty, our year-end 2010 target price for Uralkali shares is lowered from USD 3.47 to USD 1.83 in our valuation model for the company. Our official rating for Silvinit has been placed under review, but the implications for this company could also be negative.

We turn investor attention to the fact that so far, rumors about the imposition of an export duty have been rumors only. We see the likelihood of the duty being finalized as 50/50. It may be that the threat of a duty is being used as leverage on Russian potash companies in order to pressure them into more moderate domestic price increases. It is also highly likely that should the duty be eventually levied, its rate could be much lower, possibly at 5%, as it was before May 2009.

Given that potash companies are still highly priced, we recommend selling their shares at current prices, given that the risk of the duty being imposed is quite feasible, and should it be realized, that could impair their fundamental values. Our target price for Uralkali shares is USD 3.47 per share at the end of 2010, with a SELL rating. Our target price and rating for Silvinit shares are under review.