Potash Corp. of Saskatchewan Inc. CEO Bill Doyle has a message for the industry’s frazzled investors: The sky isn’t falling.
The announcement last week that the Russian potash producer OAO Uralkali is striking out on its own and breaking up one of the world’s two potash cartels sent shock waves through the fertilizer industry and prompted bearish predictions of a 20- to 25-per-cent fall in prices for potash.
Shares of potash producers tumbled sharply across the board on the news. But Mr. Doyle said the industry will persevere and there’s no reason for panic.
“I would just urge people to take a deep breath, relax and everything’s going to be just fine.” Mr. Doyle said on a webcast Wednesday to offer his perspective on the situation.
Uralkali signalled it plans a major shift in strategy by pursuing greater sales volumes of potash at lower prices. The company predicted the breakup of its Belarus Potash Co. marketing venture with potash producer Belaruskali would lead to prices falling about $100 (U.S.) a tonne to less than $300 by the end of the year.
It’s a strategy that Mr. Doyle characterized as folly.
“People historically who have adopted that strategy – our company did that when we were a Crown corporation – end up hurting themselves more than anyone else,” he said.
And while the headlines have been dramatic, the fundamentals of the business haven’t changed, Mr. Doyle said.
“Potash is not like shoes,” he said. “… If you cut the price of potash in half, farmers are not going to take twice as much. They only need so much.”
Potash Corp. is part of its own marketing group called Canpotex Ltd., which also includes Mosaic Co. and Agrium Inc. Often described as a cartel, Canpotex holds sway over potash prices by controlling output.
A reconciliation of Belarus Potash is likely before long, Mr. Doyle said. “It’s important to understand that we’ve seen this before,” he said. “It’s important to know that history and understand that history.”
“I don’t know what’s behind this,” he said. “But I do know that the current owners of Uralkali, they paid full price for Uralkali and I can’t imagine that they’d want to destroy that investment.”
But Mr. Doyle has a tendency to make bullish predictions.
Only a few years ago, mining giant BHP Billiton Ltd. offered $130 (Canadian) a share for Potash Corp. in a hostile takeover bid. At the time, Mr. Doyle dismissed the offer and said the company's value “far exceeds” $170 a share. The current share price – after adjusting for splits – is now about half the level it reached around the time of the BHP bid.
Still, Mr. Doyle is not the only one who argues that prices will eventually rise again.
A 2010 study by Canada’s Conference Board predicted a potash price of more than $480 (U.S.) a tonne by 2020 without a cartel.
At that price, projects such as BHP’s planned Jansen mine in Saskatchewan – which analysts now speculate could be delayed – would be profitable.
BHP has stayed tight-lipped about Jansen’s future but signalled that it will have more to say when the company releases second-quarter results on Aug. 20.
Mr. Doyle said there is little chance of Canpotex following Belarus’s lead.
The Canadian venture accounted for about 35 per cent of the world's traded potash last year, according to Merrill Lynch.