PotashCorp profit off on standoff with China, India

PotashCorp’s third-quarter earnings fell 22 per cent as a standoff over new contracts led to a sharp drop in shipments to China and India, the world’s two biggest consumers of the company’s namesake crop nutrient.

The world’s biggest fertilizer maker said on Thursday that overseas potash shipments by North American producers dropped by one quarter to 1.9 million tonnes in the period. China accounted for just 12 per cent of sales and India five per cent.

"The weakness obviously is in China and India, but that shouldn’t be a surprise to anyone," said analyst Spencer Churchill of Paradigm Capital.

PotashCorp, Agrium and Mosaic Co. conduct offshore potash sales from their mines in Western Canada through the marketing agency Canpotex.

Analysts had expected Canpotex to renew supply contracts with China and India in late summer, but now they say it may take until late 2012 or early 2013.

China is seen as being well supplied with the crop nutrient, while a reduction in Indian subsidies and a weaker rupee have made potash more expensive for that nation’s farmers.

Shipments to China should resume before the end of 2012, but it’s difficult to predict when India might take steps to increase potash subsidies, PotashCorp CEO Bill Doyle said.

2013 looks to be "a significant recovery year," he said.

"We believe our business operates on a long-term continuum," Doyle said in a conference call. "It will take a little time before we can fully turn loose our horses and fully demonstrate the full capability and value of our potash expansion program."

PotashCorp is nearing the end of a nine-year expansion of its potash capacity, but later this year it will idle two of its mines for eight weeks because of oversupply. More such shutdowns are likely in 2013, even with a more robust market, Doyle said.

Both China and India are expected to negotiate price cuts, but Doyle said current price levels are affordable and are not reducing demand.

PotashCorp dialed back expectations for the fourth quarter. It forecast a full-year profit of $2.40 to $2.60 a share in 2012, compared with its Oct. 17 outlook of less than $2.80 (all figures US$).

PotashCorp now estimates global potash shipments of 50 million to 52 million tonnes for 2012, down from its previous view of 53 million tonnes.

Several analysts have downgraded PotashCorp shares this month, and half a dozen have reduced their price targets on the stock. At Wednesday’s close, shares of Potash Corp had fallen seven per cent over the past month.

Analysts have also cut price targets for rival Mosaic, which missed expectations when it reported quarterly results on Oct. 2.

Potash Corp’s third-quarter net earnings fell to $645 million, or 74 cents per share, from $826 million, or 94 cents per share, a year earlier. Revenue was down eight per cent to $2.14 billion.

The Saskatoon-based company said on Oct. 17 it expected earnings at the low end of a range of 70-90 cents per share.

North America sales hit record

PotashCorp said its record third-quarter potash shipments of one million tonnes in North America, helped by a speedy U.S. harvest that encouraged farmers to bulk up on fertilizer for autumn applications, partly offset weaker offshore sales.

In total, PotashCorp sold 2.1 million tonnes of potash during the quarter, down 4.5 per cent from a year earlier.

Some analysts said the devastating U.S. drought might cut into U.S. potash applications in the fourth quarter, as disappointing crops left more of the nutrient in the soil.

But PotashCorp sees "very positive demand" from U.S. farmers, said Stephen Dowdle, president of PCS Sales.

The company’s expectations for a stronger 2013 hinges largely on China and India, Barclays analyst Matthew Korn said in a note to clients.

Weaker margins on sales of crop nutrient phosphate further eroded PotashCorp’s third-quarter earnings. The company sold 18 per cent less phosphate than it did a year earlier due to bad weather and production challenges, and prices were also down.

Prices of nitrogen rose, but Potash Corp’s sales of the nutrient fell 15 per cent due to interruptions in natural gas supplies and expansion-related downtime at its Augusta, Georgia, plant.

— Rod Nickel writes for Reuters from Winnipeg.

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