Potash price drop to hit Saskatchewan budget

TORONTO, July 31 Wed Jul 31, 2013 5:22pm EDT

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TORONTO, July 31 (Reuters) - Saskatchewan, home to an estimated 40 percent of world's potash, will reduce its potash royalty estimates when it updates its budget forecasts in August, but maintain a balanced budget, the premier of the western Canadian province said on Wednesday.

Speaking one day after Russian miner Uralkali OAO said it was dismantling one of the world's two big potash exporting cartels, Brad Wall said the downward revision of potash revenues would be mostly offset by gains in other areas including stronger than expected oil revenue.

"It's going to mean that things are a little bit tighter," Wall told reporters in Saskatchewan. "But we're going to be in a balanced budget situation because of these compensating factors."

The provincial government made a recording of Wall's remarks available to Reuters.

Revenue from potash royalties are forecast at C$520 million, or 4.5 percent of total provincial revenue of C$11.6 billion.

But that forecast assumed a potash price of $395 per tonne, while Uralkali said on Tuesday it expected the price to fall to $300 million.

"Outside the province there's this idea that we're all about potash," Wall said. "It's not even second or third or fourth in terms of revenue generation (for Saskatchewan)."

A double digit percentage decline in potash production because of lower prices could cut provincial GDP by 1 percent, Royal Bank of Canada assistant chief economist Paul Ferley wrote in a briefing note on Tuesday.

The combined hit to the mining and construction industry "has the potential to halve growth in Saskatchewan," he wrote.

The prairie province is home to Potash Corp, the world's biggest potash producer by capacity, and to uranium miner Cameco Corp. Energy output has also been rising.

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