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Potash Corp. sees profit drop 46 per cent on slide in prices

File photo of Potash Corp. CEO Bill Doyle.

David Stobbe/Reuters

Fourth-quarter profits at Potash Corp. of Saskatchewan Inc. dropped 46 per cent and the company said it would earn less than expected this year, as the demise of the Russian-Belarus potash cartel created uncertainty in the industry and weighed on fertilizer prices.

"This past quarter was a difficult one," Potash Corp.'s chief executive officer Bill Doyle said.

The Saskatoon-based company said it would earn between $1.40 and $1.80 a share this year, lower than the $2.04 earned last year and well below analysts' expectations of $2.

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The weak outlook from the world's largest fertilizer maker is another sign that the cartel breakup has forced producers to become more competitive as buyers demand lower prices for the crop nutrient.

"The lower potash price is positive for farmers," said Barry Senft, the chief executive officer of the Grain Farmers of Ontario, which represents 28,000 farmers in the province.

During the quarter, the average realized price of the nutrient used to grow crops like soy and wheat fell 27 per cent to $282 a tonne from $387 in the previous year as buyers delayed making purchases in hopes the price would fall further.

The deterioration in prices for the company's three crop nutrients, potash, nitrogen and phosphate, offset its 34-per-cent jump in potash sales volume.

Potash Corp. cut 18 per cent of its work force in December and reduced production to lower expenses.

Including $60-million in severance-related costs, the company earned $230-million or 26 cents a share in the fourth quarter. That is 46 per cent lower than the previous year's profit of $421-million, or 48 cents per share. Analysts expected the company to earn 33 cents a share.

After Russian producer OAO Uralkali killed its partnership with Belarus rival Belaruskali last August, the industry has been struggling to figure out the appropriate price for potash because it is not traded in an open market. Before the breakup, the Uralkali-Belarus alliance and its North American counterpart Canpotex controlled two-thirds of the market and had considerable sway over pricing.

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"The market is trying to adjust to what happened last summer. We are just trying to find the right equilibrium price between the producers and end users," said Jeff Nelson, an analyst with Edward Jones.

Canpotex, which includes Potash Corp., Calgary-based Agrium Inc. and U.S.-based Mosaic Co., recently agreed to sell 700,000 tonnes of potash to China's Sinofert Holdings Ltd. at what it called "competitive" market prices.

The North American group likely took the same 24-per-cent cut in potash prices that Uralkali accepted when the Russian producer signed its own semi-annual contract with the Chinese at $305 per tonne.

But although the industry is still reeling from Uralkali's move, Mr. Doyle said there were signs that "the uncertainty in global markets was beginning to abate."

Potash Corp. expects sales volumes between 8.2 million and 8.6 million tonnes of potash this year, up from last year's 8.1 million tonnes.

"We believe the market is now finding its footing," Mr. Doyle said.

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About the Author
Economics Reporter

Rachelle Younglai is The Globe and Mail's economics reporter. More


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