No lingering effects seen from Potash Corp strike

By Scott Anderson - Analysis

TORONTO (Reuters) - Potash Corp (POT.TO) is not likely to suffer many long-term effects from a 99-day strike that curbed production at three of its Canadian mines.

Indeed, the prolonged strike might actually have been a blessing in disguise for the fertilizer company, which has seen prices for the crop nutrient buckle under the weight of the global economic downturn.

At the time of the August 7 walkout, Potash Corp was reaping record profits due to soaring world demand for fertilizer to boost crop yields, leaving the company essentially sold out at a time of sky-high prices.

Since then, the financial crisis has prompted hedge funds and other investors to sour on commodities in general, and raised concerns that farmers will slash fertilizer purchases as crop prices retreat.

But the strike also came at the same time the company was entering its traditionally slow summer season, mitigating the production losses.

"Potash Corp always has a downtime schedule in response to the market conditions and in fact the strike provided them with more options and alternatives," said analyst Terry Ortslan of TSO and Associates in Montreal.

"As a result, the (company's) philosophy still stands ... volume for a price and not volume for any price."

The company has not yet assessed the impact of the strike and the amount of lost production from the disagreement, company spokesman Bill Johnson said.

The three mines -- Allan, Cory, and Patience Lake -- all located in the major potash mining region in Saskatchewan, account for about 6 percent of world production and 30 percent of the company's annual output. Johnson said the Allan mine was running at about 50 percent during the strike.

"It happened at a time when there was a lot of things going on in both the world financial markets and the world credit markets, which probably lessened the impact of the strike, than had it happened during the spring," Johnson said.

"It remains a very tight market, so there was certainly some cost touch, but we haven't put a figure against that yet."

Fertilizer prices soared in the first half of 2008, on the back of booming demand, tight inventories and record grain prices. However, the credit crisis and the global economic slowdown have weighed on the agricultural sector and grain prices have collapsed, after having peaked around mid-year.

While prices of nitrogen and phosphate -- two other major crop nutrients -- have collapsed in recent weeks, potash prices have remained firm, as producers have cut production in a bid to maintain pricing power.

But, potash prices on a delivered basis have fallen in recent weeks, due to a sharp reduction in freight costs. In September, Belarusian Potash Co signed a supply agreement with Bangladesh for a delivered price of $1,100 a tonne.

Canpotex -- the marketing arm of Potash Corp, Agrium (AGU.TO) and Mosaic (MOS.N), the three big producers operating in Saskatchewan -- agreed a week ago to supply Japanese buyers for a delivered price of slightly above $900 a tonne.