March 31, 2017 / 10:07 AM / 5 months ago

UPDATE 1-Turkmenistan opens potash plant, targets Chinese and Indian markets

(Adds context, details, analyst comment)

GARLYK, Turkmenistan, March 31 (Reuters) - Turkmenistan opened a $1 billion Belarussian-built potash plant on Friday, aiming to export 1.2 million tonnes of fertilisers to China and India per year as part of its drive to diversify away from natural gas exports.

The Central Asian nation has faced foreign-currency shortages after its gas exports were hit by declining prices and volumes, and the government is banking on the start of potash production and other projects to bolster the economy.

As a potash exporter, Turkmenistan will compete with its former Soviet overlord Russia, home to the world's biggest producer Uralkali, and Belarus, also a global player.

Belarussian companies built the plant and Minsk has said it will help Turkmenistan market the product.

Belarussian President Alexander Lukashenko attended the opening ceremony in eastern Turkmenistan and said most of the plant's production would go to China and India - the world's biggest potash importers.

"This is Central Asia's biggest potash plant. One can confidently say it will produce 1.5 million tonnes a year," Lukashenko said, adding that Turkmen President Kurbanguly Berdymukhamedov had told him about plans to build two more potash plants.

Uralkali said this month it expected global potash demand to rise by 1-2 million tonnes this year to between 62 million and 63 million tonnes, driven by China.

It was unclear when the new plant would reach production capacity and how much potash it would produce in 2017.

The plant was launched two years later than the original deadline, in part because the market for the crop nutrient has been hit by strong competition since 2013, when Uralkali quit a trading alliance with Belarusian potash producer Belaruskali.

Lukashenko said the project had encountered some technical difficulties but the issues had been resolved.

"Despite all the drawbacks, I think we have not let down the Turkmen people," he said, without elaborating on the nature of the technical problems.

Global potash producers are still suffering from strong competition, low prices for agricultural commodities and weak demand from India and China.

New potash production capacity is expected to be launched by Germany's K+S in Canada and by Russia-focused fertiliser producer Eurochem in Russia in 2017.

"We already see a crisis of overproduction in the sector. The new project will only strengthen the competition," said Oleg Petropavlovskiy at BCS Investment Bank.

Petropavlovskiy said potash from Turkmenistan might be interesting for spot markets in Southeast Asia and South America. He did not rule out that Turkmenistan could also sign a long-term supply contract with China.

Uralkali declined to comment. (Reporting by Marat Gurt; Additonal reporting by Polina Devitt in Moscow and Natalia Shurmina in Yekaterinburg; Writing by Olzhas Auyezov; Editing by Dale Hudson and Susan Fenton)

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