A dispute between potash producers in Eastern Europe will slow economic growth in Saskatchewan as prices for the crop nutrient come under pressure, an RBC economist warns.
Russian producer OAO Uralkali's decision to leave marketing group Belarusian Potash Co. in July amid a dispute with its partner, Belaruskali is expected to send potash prices down by 20 per cent.
This is bad news for the province that counts on the commodity for $520-million in annual royalties and more than 2 per cent of its economy.
Craig Wright, chief economist at RBC, has lowered Saskatchewan's economic growth forecast to 2.7 per cent for 2013 and 2014, down from 2.9 per cent and 3.7 per cent, respectively. While Mr. Wright expects the resource-dependent economy to outperform the Canadian broader economy this year, it will lag next year.
"The key question mark hanging over the outlook for Saskatchewan is the near-term direction for production of, and investment in, potash in the province in the wake of these developments," Mr. Wright wrote in a report on Canada's economic outlook.
Uralkali's decision to quit the cartel and undercut its former partner puts pricing pressure on Canpotex, the North American group that markets the crop nutrient. Share prices in the three companies that form the group have fall since the Russian announcement. Shares in Potash Corp. of Saskatchewan and Mosaic Co. are down about 14 per cent amid fears the lower prices will eat into profits. Shares in the third member of Canpotex, Agrium Inc., are down just 2 per cent.
Australian miner offered a note of assurance to the province rattled by the lower prospects for the potash sector. In August, the Australian miner said it was committed to spending another $2.6-billion on its Jansen mine over the next three years.
Saskatchewan's potash miners have been boosting production by 13 per cent this year to fulfill contracts from overseas buyers. But they are expected to respond to the lower prices and heightened competition by slowing growth in overall output to 6.5 per cent this and 4.5 per cent next year, Mr. Wright said. "The downward revision to the outlook for potash production is the main factor lowering Saskatchewan's growth this and next …"