By Rod Nickel
July 25 Potash Corp of Saskatchewan Inc
, the world's biggest fertilizer producer, reported a
lower-than-expected quarterly profit on Thursday and cut its
outlook as prices of its crop nutrients fell.
The Canadian miner's U.S.-listed shares dropped as much as
5.2 percent to their lowest in nearly three years earlier in the
day. But by the afternoon, the stock had pared its losses in New
York to a drop of 1.8 percent to $37.24 and down 2.2 percent to
C$38.30 in Toronto.
Producers of crop nutrients potash and phosphate have
struggled to stop a slide in prices amid ample supplies and soft
demand in key importer India because of reduced government
subsidies and a weakening rupee.
Unfavorable subsidy conditions, which favor nitrogen over
potash and phosphate, might not improve for up to a year until
after India's spring election, said Chief Executive Officer Bill
Doyle, echoing earlier comments by rival Mosaic Co.
But "it depends on how urgent it gets," Doyle said in an
interview with Reuters. "If the crop comes off very poorly, they
may have an emergency situation they have to address before the
Poor crops this year would likely pressure the Indian
government to boost fertilizer subsidies to help farmers
maximize output in the following cycle and avoid a food
Doyle added that, while India's soft demand is a "drag" on
Potash Corp, it is a bigger problem for nearby fertilizer
producers such as ICL Israel Chemicals Ltd and Arab
Potash Co Plc.
The decline in potash prices has prompted several major
companies, including Vale SA and Mosaic Co,
to delay plans for new or expanded mines.
North American potash stocks have also piled up in the past
year, sitting 14 percent above the five-year average in June.
Potash said on Thursday that it would run two of its mines
at reduced rates for the rest of the year, adding to earlier
curtailments announced by the company and Mosaic.
The result will be lower company
stockpiles than normal at the year-end, Doyle said.
The company's production curtailments are no surprise
considering the ample supplies and soft prices, said Cowen
Securities analyst Charles Neivert.
"You don't keep producing when things stink," he added.
The Saskatoon, Saskatchewan-based company, the world's
largest potash producer by capacity, expected 2013 earnings of
$2.45 to $2.70 per share, down from a prior forecast of $2.75 to
$3.25. Analysts on average had forecast $2.89, according to
Thomson Reuters I/B/E/S.
For the third quarter, Potash forecast profit of 45 cents to
60 cents per share, far short of Wall Street expectations of 73
The company's potash sales fell slightly to 2.5 million
tonnes in the second quarter from a year earlier, while the
average realized price dropped 18 percent to $356 per tonne.
However, with prices dropping, demand is strong.
Potash Corp expected global 2013 potash shipments of nearly
56 million tonnes, matching a two-year record and at the
midpoint of its previous forecast of 55 million to 57 million
tonnes. It maintained its forecast for its own 2013 potash
shipments at between 8.5 million and 9.2 million tonnes.
Achieving those levels depends in large part on a
second-half supply contract with Chinese buyers. Canpotex Ltd,
the offshore sales agency for Potash Corp, Mosaic and Agrium Inc
, is in talks with China's Sinofert Holdings Ltd
Doyle expected a deal by the end of the third quarter, once
China works through its ample inventory.
The company sold roughly the same volume of phosphate as a
year earlier, 900,000 tonnes, and 8 percent more nitrogen at 1.4
million tonnes, but prices of both nutrients fell. Potash's
average realized price per tonne dropped 6 percent to $517 for
phosphate and fell 7 percent to $406 for nitrogen.
Net earnings in the second quarter rose to $643 million, or
73 cents per share, from $522 million, or 60 cents per share, a
year earlier, when the company took a large impairment charge on
one of its investments.
Earnings per share in the latest quarter fell into the lower
end of the company's forecast range and missed analysts'
estimates of 81 cents.
Sales fell about 11 percent to $2.14 billion, while analysts
were expecting $2.2 billion.
Last week, Mosaic reported a 4 percent decline in quarterly
earnings and forecast further drops in potash and phosphate
Potash said after markets closed on Wednesday that it would
buy back $2 billion worth, or 5 percent, of its common shares
over a one year period.