Potash Corp (POT.TO) (POT.N), the biggest global producer of its namesake crop nutrient, cut its full-year earnings forecast for the second time, citing delays in new contracts with buyers in China and India.
U.S.-listed shares of Potash Corp slipped in New York in early trading and were slightly lower in Toronto, recovering from a 4 percent premarket drop on the news. Shares of rivals Mosaic Co (MOS.N) and Agrium Inc (AGU.N) were little changed.
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.
Potash Corp, Mosaic and Agrium Inc (AGU.TO) sell potash offshore through marketing agency Canpotex. They have been awaiting new contracts with buyers in China and India, two of Canpotex's biggest off-shore customers, since late summer.
"They 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 Potash Corp and holds a Street-low price target on the U.S.-listed stock of $37.
It is the second time in three months that Potash has cut its full-year outlook. The company trimmed its earnings forecast in July largely to reflect the impact of an impairment charge.
On Wednesday, Saskatoon, Saskatchewan-based Potash Corp said full-year earnings would be less than $2.80 per share. In July, it forecast $2.80 to $3.20 per share.
Third-quarter profit is expected to be at the low end of a range of 70 cents to 90 cents per share, the company said. Analysts were expecting 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.
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 its previous contracts with Canpotex, and both are in line for reductions, Lazard Capital Markets analyst Edlain Rodriguez said.
Potash Corp temporarily shut its biggest mine 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.
It is likely that Potash Corp, and perhaps Mosaic, will further reduce production in the coming weeks to adjust for lower demand, Rodriguez said.
"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," he said. "The magnitude (of Potash's guidance reduction) might be a little higher than expected, but I don't think it's a big surprise that numbers had to come down."
China and India, along with the United States and Brazil, are key consumers of potash. They buy Canadian potash through contracts generally renewed annually, that are used as a benchmark for spot sales.
The weakening rupee and a cut in 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 with either Canpotex or the other big potash marketer, Belarusian Potash Company (BPC).
Potash Corp shares slipped 11 cents to $41.49 in New York and were off 0.3 percent in Toronto at $40.96. (Reporting by Bhaswati Mukhopadhyay in Bangalore and Rod Nickel in Winnipeg, Manitoba; Editing by Sriraj Kalluvila and Maureen Bavdek)