Prosperity Saskatchewan

PotashCorp rips into Russian producer – #potash

25 Oct 2013
National Post – (Latest Edition)
By Peter Koven Financial Post

Potash Corp. rips into Russian producer

TORONTO • With the potash market in disarray and his stock price under constant pressure, Bill Doyle is taking out his frustrations on the company responsible.

On a conference call to discuss third quarter results, the chief executive of Potash Corp. of Saskatchewan Inc. ripped into OAO Uralkali, the Russian producer, saying its decision to collapse a cartel-like marketing company and max out production was “probably the single dumbest thing” he has ever seen in the fertilizer business.

“Customers don’t forget that type of leadership, or lack thereof in this case,” Mr Doyle said. “And many of them regard Uralkali as being irresponsible.”

He noted that Uralkali’s move is not working out too well for that company either, as its CEO is under house arrest in Belarus, its biggest shareholder is under political pressure to sell his stake, and the company just announced a big cut to its dividend.

The Uralkali decision, which happened in late July, has taken a devastating toll on the fertilizer sector. Demand has dried up as buyers elected to sit on the sidelines in anticipation of lower prices. Prices have indeed fallen, but that has failed to stimulate much demand — in fact, Potash Corp. said offshore shipments from the North American producers fell to one of the lowest third-quarter totals in “recent history” this past quarter.

The impact was evident in Potash Corp.’s Q3 results. The Saskatoonbased company reported earnings of US$356-million, or US41¢ a share, down 45% from the same quarter last year and in line with recently lowered guidance. The company also slashed its full-year earnings guidance to between US$2 and US$2.20 a share, well below analysts’ expectations. Along with potash, weaker nitrogen and phosphate prices also dragged down results.

While the potash business looks extremely grim right now, Mr. Doyle expects a rebound soon. He noted the need for crop nutrients worldwide has not changed, and that demand has recently emerged in the United States and Latin America as farmers entered their planting windows.

“History has shown that buyer deferrals are generally followed by growth in demand,” he said.

Mr. Doyle expects the Uralkali situation to get resolved, but could not predict when that would happen. In the meantime, potash prices are facing downward pressure.

But now the current global potash price is between US$320 and US$350 a tonne, BMO Capital Markets analyst Joel Jackson estimated, noting that the low end of that range may be too high. When Uralkali disbanded its partnership with Belaruskali in July, it predicted that prices could fall from US$400 to US$300. At the time, Mr. Doyle said he did not see that happening, but they appear to be much of the way there.

“Once you start a boulder down a hill, who can stop it halfway?” Mr. Jackson said. “Every week this goes on, it gets worse and worse. Because buyers are afraid to take inventory risk. They’re afraid whatever they buy will be written down next week or next month. So prices could keep getting pounded down until we have some certainty.”

Potash Corp.’s realized selling potash selling price was just US$307 a tonne in the third quarter, down from US$429 in the same period last year. The offshore price was even worse, coming in at US$285.

And even at lower prices, the company had trouble moving product to overseas customers through Canpotex Ltd.. Its offshore sales volumes fell 27% year-over-year to roughly 800,000 tonnes.