OREANDA-NEWS. March 04, 2010. The Russian government is considering the introduction of a 15% export duty on potash fertilizers, reported the press-centre of OTKRITIE Financial Corporation.

View: Potash producers paid a 5% export duty during the period April 2008 - February 2009, which was then cancelled. The duties were related to government plans for supporting agricultural companies, with the extra margin of the potash business transferred into agricultural subsidies in order to stimulate domestic demand. Export sales account for more than 80% of the sales mix of Uralkali and Silvinit's, so a 15% export duty would likely lead to a nearly 15% decrease in revenues. Given a projected EBITDA margin for 2010 of approximately 50%, both Uralkali and Silvinit could face a 30% decrease in their EBITDA for 2010, and beyond.

Valuation and Action: We see a 30% downside risk to our valuation of Uralkali and Silvinit in the event that a 15% export duty is introduced. The market cap of both companies dropped significantly in the wake of this news. The share price of Acron also dipped, as investor speculation centers upon around possible duties for nitrogen and complex fertilizers (which amounted to 8.5% previously in 2008). However, we retain our positive view on Acron and recommend using any weakness as a BUYing opprtunity.