UPDATE 5-Potash cuts outlook, shuts mines as China, India deals lag

Wed Oct 17, 2012 4:16pm EDT

* Cites delays in new contracts with China, India buyers

* Now expects full-year profit below $2.80 per share

* Will close 2 mines for 8 weeks

* Potash shares mixed

By Rod Nickel and Bhaswati Mukhopadhyay

Oct 17 (Reuters) - Potash Corp , the biggest global producer of the crop nutrient potash, cut its full-year earnings forecast for the second time in three months on Wednesday and said it would temporarily shut two mines, citing delays in signing new contracts with buyers in China and India.

Those two countries, along with the United States and Brazil, are the world's biggest importers of Canadian potash. They buy the crop nutrient through contracts that are generally renewed annually at prices that are used as a benchmark for spot sales.

"(Producers) set the potash price too high, the buyers can't afford it and there's demand destruction going on," said analyst Robert Winslow of National Bank Financial. "You can't have it both ways - high demand and high pricing - so they're paying the price for it."

Winslow has an "underperform" rating on shares of Potash Corp and holds a Street-low price target on the U.S.-listed stock of $37.

The weakening rupee and a cut in government fertilizer subsidies have made potash more expensive for Indian farmers, contributing to a stockpile of potash among North American producers.

China is seen as amply supplied with potash for now, leaving it in no hurry to sign contracts.

Potash Corp, Mosaic Co and Agrium Inc sell potash offshore through marketing agency Canpotex. They have been waiting for new contracts with buyers in China and India since late summer.

The cut by Saskatoon, Saskatchewan-based Potash in its earnings forecast on Wednesday follows a cut it made in July, largely to reflect the impact of an impairment charge. On Wednesday, the company said its full-year earnings would be less than $2.80 per share. In July, it forecast $2.80 to $3.20 a share.

Third-quarter profit is expected to be at the low end of a range of 70 cents to 90 cents a share, the company said. Analysts had expected 83 cents per share.

"This bad news should already be (reflected) in the stock," analyst Vincent Andrews of Morgan Stanley said in a note to clients.

Shares of Potash Corp rose nearly 1 percent to close at $41.99 in New York, recovering from a 4 percent premarket drop on the news of the lowered outlook. In Toronto, they closed at $41.12, up 2 Canadian cents.

PRICE BREAKS, PRODUCTION CUTS SEEN

North American prices at the Port of Vancouver, the main Canadian port for potash exports, hovered under $500 in September, according to market data released by Potash Corp on Monday. China paid $470 per tonne and India bought potash for between $490 and $530 per tonne under previous contracts with Canpotex, and both are in line for reductions, Lazard Capital Markets analyst Edlain Rodriguez said.

Potash Corp also said Wednesday it would shut two potash mines for eight weeks, to try to match supply to demand.

The company's biggest mine, at Lanigan, Saskatchewan, will close between Nov. 18 and Jan. 12, while the Rocanville, Saskatchewan, mine will be shut from Dec. 2 to Jan. 26.

The mines have annual operating capacity of 3.3 million tonnes and 2.7 million tonnes respectively.

Potash Corp temporarily shut down Lanigan for about a month this autumn to reduce its stockpile, but inventories of North American producers were still 39 percent larger than the five-year average in September.

"With India and China still out of the market and prices under pressure, it's going to be a real challenge in the medium term," Rodriguez said. "The magnitude (of Potash's forecast reduction) might be a little higher than expected, but I don't think it's a big surprise that numbers had to come down."

Indian fertilizer buyers are unlikely to agree to new potash contracts until December at the earliest, the head of Indian Farmers Fertiliser Co-operative (IFFCO), one of India's biggest fertilizer makers, said last week.

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