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TORONTO (miningweekly.com) – The world’s largest supplier of crop nutrients by volume, Potash Corporation of Saskatchewan, will shutter its operations and cut output as margins for all three of its main products have fallen, sending its NYSE-quoted stock falling as much as 4.3% in early trading.
For the three months ended September 30, Saskatoon, Saskatchewan-based PotashCorp reported an 11% year-on-year drop in net profit to $282-million, or $0.34 a share, compared with earnings of $317-million, or $0.38 a share, a year earlier.
Excluding special items, the company reported adjusted earnings of $0.37 on Thursday, on par with analyst expectations, on revenue of $1.45-billion.
Revenue for the period declined 7% year-on-year to $1.53-billion.
The gross margin for the quarter was $505-million, below the $589-million generated during the third quarter of 2014, mainly owing to weaker nitrogen contributions, PotashCorp reasoned.
“Broader emerging market concerns have weighed on customer sentiment, contributing to a weaker fertiliser environment in the second half of 2015. In response, we are moving forward the permanent closure date of our Penobsquis, New Brunswick mine and planning inventory shutdowns in December at three of our Saskatchewan mines. While we anticipate production in the fourth quarter to be reduced by nearly 500 000 t, we do not expect employee layoffs,” president and CEO Jochen Tilk stated.
The company had revised its full-year earnings guidance to between $1.55 and $1.65 a share, down from $1.75 to $1.95 a share previously – below analysts average full-year forecast of $1.73 a share.
The average realised potash price of $250/t in the third quarter was down 11% from $281/t in the same period last year, owing to declining prices in North America and a higher percentage of sales volumes to lower-netback offshore markets.
PotashCorp noted that the potash market faced downward pressure in the second half of the year, as fewer sales were expected in China with a new value-added tax on fertiliser sales, while drier weather in India and lower demand caused by weaker currencies and adverse weather conditions affected the rest of Asia.
It had revised its full-year guidance for potash sales to between 9-million tonnes and 9.2-million tonnes, down from previous predictions of 9.3-million tonnes to 9.6-million tonnes, and now expected a potash gross margin of $1.4-billion to $1.5-billion, reflecting the weaker volumes and pricing.
PotashCorp also lowered the top end of its previous combined nitrogen and phosphate gross margin, after nitrogen prices fell 10.4% year-on-year to $319/t, and the cost of phosphate sold grew 9% to $475/t. It now expected margins to be between $1-billion and $1.1-billion. In nitrogen, the company expected a gross margin below last year’s record, as increased global supply was expected to keep a lid on prices for most products, below 2014 levels.
Further, weaker North American demand, reduced output owing to mechanical challenges and an expansion-related turnaround at Lima, were expected to keep sales volumes below last year’s levels. In phosphate, supporting market fundamentals and a higher-netback product mix were expected to support the gross margin above 2014 levels.
PotashCorp had also lowered its range for income from offshore equity investments to between $165-million and $175-million, down from previous guidance of $190-million to $120-million, owing to a weaker-than-expected potash earnings environment and it had also slightly increased its estimate for selling and administrative expenses to $245-million to $250-million, up from previous guidance of $235-million to $245-million.
PotashCorp’s NYSE-listed stock had fallen nearly 40% since the start of the year and closed down 2.81% on Thursday at $20.72 apiece.