Mosaic profit drops on weak China supply contract

Fertilizer producer Mosaic Co. on Friday said its quarterly operating profit fell 30 per cent and it expects potash margins to fall further in its current quarter — reflecting a recent low-priced contract with China.

China has been aggressively negotiating for lower potash prices, and in December Sinofert Holdings signed a deal with Canpotex — the offshore sales agency for potash producers PotashCorp, Mosaic and Agrium — at a steep discount.

Mosaic CEO Jim Prokopanko said he was disappointed Canpotex was not able to get higher prices in the China contract, and blamed low demand and smaller rivals.

"Others were willing to do something on pricing," he said in an interview. "However, we think volume is coming back."

Mosaic said it expects to sell between 1.5 million and 1.8 million tonnes of potash in its third quarter, with prices ranging from $370 to $400 per tonne, down from $443 per tonne in the second quarter (all figures US$).

Operating earnings for its second quarter fell 30 per cent to $560 million from $797 million a year earlier.

The company reported net income of $629 million, or $1.47 per share, including tax benefits, for the quarter ended Nov. 30. It posted a profit of $624 million, or $1.40 per share, a year earlier.

Excluding items, the company earned $1.02 per share, beating analysts’ expectations of 93 cents per share, according to Thomson Reuters I/B/E/S.

Revenue declined 17 per cent to $2.5 billion.

Potash sales volume for the second quarter fell 17 per cent to 1.5 million tonnes.

The Minneapolis-area company cut its forecast for phosphate and potash sales last November, citing uncertain supply contracts with China and India.

Prokopanko said that, despite temporary weakness, demand for fertilizer is expected to grow.

"Basic farm fundamentals are starting to overtake a sentiment in the world," he said. "Farmers, at these high grain prices, don’t want their plants to suffer without proper nutrition." — Reuters

Related stories:
China signs deal to buy Sask. potash at discount, Dec. 31, 2012
Softer fertilizer prices seen likely over winter, Nov. 28, 2012

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