Potash Corp. of Saskatchewan reported a surprisingly steep 38-per-cent drop in fourth-quarter profit, stung by slumping demand in China and India.
The sagging fourth-quarter results capped a year that saw Potash Corp. profits drop by about $1-billion from a year earlier, as shifting industry economics and volatile weather punctured the Saskatoon-based company's bottom line.
"Agriculture is inherently an unpredictable business – from variability in weather and growing conditions to government policy changes that can affect the decisions of farmers," the company said, after a year that saw drought sweep the United States, spoiling early predictions for a massive global crop surplus for grains and oil seeds.
"It was a shift that once again put a focus on the unpredictable nature of food production," Potash Corp.'s chief executive, Bill Doyle, said on a conference call with analysts Thursday.
Potash Corp. shares fell 1.9 per cent on the Toronto Stock Exchange Thursday, paring losses of as much as 3 per cent earlier in the day as the company predicted 2013 would be a better year, with stronger demand and higher profits.
The fall in fourth-quarter profit was driven by a 43-per-cent drop in potash shipments to offshore markets and a 37-per-cent drop in sales to India and China.
Potash prices are about half the peak touched in 2008, just before the global economic crisis interrupted booming demand from China, India and Brazil, key markets for the nutrient that makes plants stronger and more resistant to drought and disease.
Some major customers have remained reluctant to make large-scale purchases at prevailing price levels, holding out for better deals. The potash industry, meanwhile, is attracting new players and new mines that stand to add to long-term supply and boost competition among producers.
Prices today, on a per-tonne basis, are in the mid $400s, compared with nearly $1,000 at the peak in 2008 and lows of $300 later the same year, when farmers stopped buying potash as prices got too high. Since then, prices have edged up again but delayed supply contracts with China and India prevented a much anticipated rebound last year.
Mr. Doyle said an agreement with China's Sinofert Holdings Ltd. earlier this month is a bright spot, and a deal is likely in the first quarter with India.
"We recognize that ebbs and flows in fertilizer demand will always be part of our business, but we believe the factors that limited demand this past year – destocking and deferred purchases – will begin to drive an even greater need for our products in 2013 and beyond," Mr. Doyle said.
Potash Corp. predicts global shipments of the fertilizer to be as high as 57 million tonnes this year, 12 per cent higher than in 2012, driven also by strong demand from North America and Latin America, where agriculture giant Brazil has been buying since the start of the year.
Reasons for company optimism include the agreement with Sino-fert, which agreed to buy far more potash than expected for its first-half needs, although at a considerable discount to the contract it signed in early 2012.
"This is a promising sign. For many, the question now becomes China's second-half plan," said Mr. Doyle. "We know China's needs stretch beyond this spring season, and if that country follows through on its stated goal of improving food security, we see potash needs rising in 2013 and beyond."
As for India, he decried the lack of India government subsidies in that country, which makes potash too expensive for local farmers. Mr. Doyle estimates India needs of as much as 11 million tonnes per year to replenish nutrient-deficient soils, compared with estimates for 2013 consumption of between 3.5 million tonnes and 4.5 million tonnes of the nutrient that also improves taste, colour and nutrition value of plants.
SETTLEMENT PAYMENT A 'HOLD-UP'
Potash Corp.'s chief feels as if the company was robbed for having to pay $43.75-million (U.S.) to settle anti-trust lawsuits in the United States.
"I really had to hold my nose with this one," chief executive Bill Doyle told analysts when asked about Potash Corp., Agrium Inc. and Mosaic Co. agreeing to pay nearly $100-million in total to settle lawsuits alleging they acted like a cartel when prices for the crop nutrient were soaring.
"Because it was just really a hold-up. It was no different than someone putting a gun at your back and taking your watch and your purse or your wallet, but we made the decision [to pay the settlement] because we thought it was in the best interest of the company, even though we would have loved to take those people on," Mr. Doyle said. Despite the settlement, the companies deny any wrongdoing.
Potash Corp., Calgary-based Agrium and Plymouth, Minn.-based Mosaic announced the settlement on Wednesday, more than four years after they were named along with major Russian and Belarussian potash producers, which settled the claims against them in September.
The acrimony between the sides is apparently mutual.
Responding to similar comments that Mr. Doyle made in a press release about the settlement this week, Bruce Simon, a San Francisco lawyer for the plaintiffs, shot back: "I would simply say that Mr. Doyle has shown a propensity to shoot off his mouth in the past. And his comments should be taken in that context."
With files from reporter Jeff Gray