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PotashCorp says market caution to blame for Q3 earnings dip

24th October 2013

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – The world’s largest potash and crop nutrient producer, Canada’s Potash Corporation of Saskatchewan (PotashCorp), on Thursday said the unexpected July unravelling of the world's largest potash cartel, the Belarus Potash Company (BPC), had resulted in a “predictable”, extremely cautious market during the three months ended September 30, that had chipped away at its profit.

The break-up of the BPC, a joint venture between Russia's Uralkali and Belarussian partner Belaruskali, left North America's Canpotex, comprising of PotashCorp, Agrium and Mosaic, as the dominant potash export venture.

However, this did not help to boost profits and PotashCorp on Thursday reported a 45% drop in third-quarter profit to $356-million, or $0.41 a share, down from $645-million, or $0.74 a share, mainly as a result of weaker prices for all three of its crop nutrients and lower potash sales volumes.

PotashCorp said that despite the need for proper crop nutrition fuelling strong demand for potash through the first half of 2013, the change in strategy by Uralkali in late July created considerable market uncertainty and stalled global demand.

“The most recent quarter can best be characterised as a predictable response to an unpredicted event. As we have seen in the past, fertiliser customers faced with uncertainty act with extreme caution.

“This was the case during the third quarter, particularly in offshore potash markets, where significant purchases were delayed as Russian producer pronouncements left buyers waiting in anticipation of weaker prices. While this volatility does not change the long-term underlying fundamentals of fertiliser demand, it did significantly slow market activity and our ability to deliver the results we expected,” PotashCorp president and CEO Bill Doyle said.

Critical offshore markets – particularly large contract buyers in China and India – delayed potash purchases or were reluctant to accept significant tonnage against existing contracts. Despite Brazil continuing to be a region of relative strength, with buyers procuring tonnes in preparation for their upcoming planting season, offshore shipments from North American producers fell to one of the lowest third-quarter totals in recent history.

In North America, a pause in buying early in the quarter and a late crop resulted in shipments below the record achieved in 2012, a period when demand was pulled forward by an early harvest that enabled strong fall applications. In both the offshore and North American markets, pricing weakened as the quarter progressed.

In nitrogen, US demand for ammonia, urea and nitrogen solutions was relatively flat compared with last year and production from low-cost domestic producers increased, reducing the need for higher-cost offshore imports. While this situation benefited domestic producers, the combination of typical seasonal slowness and increased availability of new supply from offshore exporting regions softened key global reference prices through the quarter.

Global phosphate markets were also subdued during the quarter, as strong Latin American demand was offset by the continued absence of significant engagement from India and a delayed start to the US fall application season. Solid phosphate fertiliser shipments from US producers were slightly below those of both the third quarter and the first nine months of 2012. This environment put downward pressure on prices for most phosphate products.

PotashCorp said buyer caution and competitive pressures resulted in a price of $307/t in the quarter, down from $429/t in the same period last year.

As a result, the company had revised its 2013 potash gross margin forecast range to between $1.5-billion and $1.7-billion on expected shipments of between 8-million and 8.4 million tonnes.

The Saskatoon-based company says offshore investments in Jordan, Chile and Israel contributed $85-million to earnings for the third quarter.

PotashCorp’s TSX-listed shares traded 3.89% lower at C$31.65 apiece on Thursday afternoon.

Edited by Creamer Media Reporter

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