Potash drilled from the earth is carried up to the surface on a conveyor belt.DAVID STOBBE
Potash Corp. of Saskatchewan Inc. expects to start reversing its potash production slowdown in the second half of 2009, with output fully restored by the end of the year.
Ramped-up production will coincide with an expected rise in demand later this year, followed by a surge in 2010, said president and chief executive officer Bill Doyle.
"We think we're going to be bringing our people back to work and then I think we'll be having a really good go in 2010," Mr. Doyle told reporters after speaking at the company's annual meeting. "I see a remarkably changed year in 2010. (Production) could easily be fully restored by the end of this year and then giving her the gears in 2010."
Potash Corp., whose shares dropped about 3 per cent to $109.77 (Canadian) yesterday, curtailed production at all six Canadian mines this year, amounting to a reduction of 3.5 million tonnes of production. With the slowdown reversed, the company expects to return to full production, which could reach a record 12 million tonnes in 2010.
Fertilizer prices soared in early 2008 on surging demand, tight inventories and record grain prices. But the global credit crunch and the economic downturn has weighed on the agricultural sector, and grain and nutrient prices tumbled as farmers deferred applying fertilizer.
Recovery for Potash Corp, which reported a 46 per cent drop in first-quarter profit last month, is just ahead in 2010, with the same global conditions of a growing population and rising demand for food in place that produced 2008's strong returns, Mr. Doyle said.
"We know the current slowdown will pass and that a strong demand surge is likely to follow," he told shareholders.
"It's like watching someone pull back on the pocket of a slingshot. When this is unleashed, we expect a significant rebound that will carry us forward."
Mr. Doyle expects the global supply of potash fertilizer to be tight for the next five to 10 years, despite a massive planned increase in production capacity.
"Fertilizer customers have been slow to return to the table, but they cannot defer purchases indefinitely," Mr. Doyle said.
"Many major markets are showing signs of having destocked their inventories and must rebuild their supplies."
The company's reasons for optimism centre on a global rebound in the need for more fertilizer to increase food production for a growing population, particularly in China and India, Mr. Doyle said.
Potash Corp. is spending $7-billion on expansion and upgrading projects in the Canadian provinces of Saskatchewan and New Brunswick. They will give the company 18 million tonnes of capacity by the end of 2012, more than double the capacity when it started its expansion program in 2005.
The company's competitors are also expanding, while junior mining companies and Australian mining giant BHP Billiton are planning new Canadian mines. Some of those won't go ahead, Mr. Doyle predicted. Talk has circulated of Potash Corp being a potential takeover target for BHP, but Mr. Doyle said such talk has been around for two years.
"It could be possible. Do we worry about it? Absolutely not. We don't lose any sleep about what somebody else might or might not do ... I don't see any imminent threat to us."
Potash Corp.'s increased production could sell at higher prices, which could drive the company's potash gross margin to $25-billion annually, Mr. Doyle said, adding he was not forecasting that figure.
Potash Corp. (POT-T)
Close: $109.77, down $2.18
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