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Potash Corp.’s offices in Saskatoon. (David Stobbe/Reuters)
Potash Corp.’s offices in Saskatoon. (David Stobbe/Reuters)

agriculture

Cartel collapse hits Potash Corp., prompting mining giant to cut outlook Add to ...

Potash Corp. of Saskatchewan Inc. has cut its profit outlook for this year due to weak demand after the breakup of a Russian-Belarussian potash cartel sent prices of fertilizer tumbling.

The Saskatoon-based company, the world’s biggest potash producer, said on Thursday it would now earn between $2 to $2.20 a share this year, down from its previous forecast of between $2.45 and $2.70 per share.

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The weaker forecast from Potash Corp. reflects difficulty the industry faces following the Belarus Potash Co. breakup in July. Russia’s OAO Uralkali withdrew from a partnership it had with rival Belarus’s Belaruskali, dismantling one of the two marketing alliances established to sell potash to the world.

The Belarus joint venture and its North American counterpart, Canpotex Ltd., controlled 70 per cent of the potash market before the breakup and therefore could influence the price and global supply of fertilizer. Potash does not trade on any public markets, leaving price formation almost entirely up to producers of the product and their customers.

“Uralkali’s change in sales strategy created tremendous market uncertainty and a state of paralysis in most regions,” Potash Corp.’s chief executive officer Bill Doyle said on a public call with analysts after the company announced third-quarter results.

“But we caution against getting too caught up in the recent drama and headlines. Admittedly the recent slowdown in potash demand and decline in pricing have been challenging, but that does not mean that the prospects for our industry have forever changed,” he said.

Now the future is murky with big buyers of the crop nutrient waiting to see how far the price of potash will drop before signing any contracts.

Potash Corp. said in Thursday’s announcement that its average realized potash price in the third quarter fell 23 per cent to $307 a tonne from $429 a tonne last year.

The company warned two weeks ago that it would miss its third-quarter earnings target because of the purchase delays. The company’s smaller North American competitors, Agrium Inc. and Mosaic Co., have recently lowered their shipment forecasts for the year.

Potash Corp. reported a quarterly profit of $356-million, or 41 cents a share, in line with its guidance. That was 45-per-cent lower than the $645-million, or 74 cents, it earned in the year-earlier period.

The company’s gross margin for potash declined to $228-million in the third quarter from the $554-million earned last year. Meanwhile, sales of the company’s nitrogen and phosphate, used to grow crops including rice and soy, also fell in the third quarter.

Mr. Doyle used his call with analysts to criticize Uralkali’s action for what he called “the single dumbest thing that I have ever seen.” He said the uncertainty in the potash markets would eventually ease and that the Canpotex joint venture would come out ahead.

The decision by the Chinese government’s sovereign wealth fund to acquire a stake in Uralkali could keep potash depressed as the Asian economy, the world’s largest consumer of potash, will have more say on prices. China Investment Corp. agreed last month to acquire a 12.5-per-cent stake in Uralkali in a debt-for-equity exchange.

Mr. Doyle said there were signs that potash buyers from North America and Asia would be filling orders and pointed to the strong demand from Brazil. He downplayed analyst concerns about deferred contracts from China, saying that his company would “continue to be a major player in China.”

But it is unclear when Potash Corp.’s customers will start replenishing their supplies. “When does demand start to pick up? That is what everyone is trying to figure out,” said Jeff Nelson, equity analyst with Edward Jones.

 
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