July 23, 2009 / 10:39 AM / 10 years ago

UPDATE 3-Potash Corp profit down; Canpotex deal spurs shares

* Q2 EPS $0.62, analysts’ view $0.69/shr

* Sees FY 2009 EPS $4-$5, Q3 EPS $0.80 to $1.20

* Canpotex agrees to sell potash to India at $460/tonne

* Potash Corp shares rise 7 percent (Recasts, adds CEO comment. In U.S. dollars)

By Euan Rocha

TORONTO, July 23 (Reuters) - Potash Corp of Saskatchewan POT.TO POT.N, the world’s largest fertilizer maker, announced a drop of almost 80 percent in its second-quarter profit on Thursday, hurt by lower sales volumes and weaker pricing, and it also cut its full year financial forecast.

But shares of the company rose 7 percent as an announcement that Canpotex, the potash marketing arm of Potash Corp, Mosaic Co (MOS.N) and Agrium Inc AGU.TO, will sell potash to India at $460 a tonne lifted the market mood.

Analysts say that could boost sales volumes and bring a thaw in potash markets. [ID:nN23394383]

Potash Corp is the world’s largest producer of the key crop nutrient and its second-quarter results were hurt most by a collapse in potash sales volumes. The price of potash has remained stubbornly high until recently, as producers have kept a tight rein on supply.

But analysts had hoped Canpotex would agree to cut the price to boost sales volumes. Smaller suppliers such as Germany’s K+S SDFG.DE, Russia’s Silvinit SILV.RTS and Israel Chemicals (ICL.TA) have already agreed to supply India at $460 per tonne price. Canpotex’s main rival BPC, the marketing arm of potash producers Uralkali (URKA.MM) and Belaruskali, has yet to confirm a deal to sell potash at this price.

Spot potash prices were around $700 per tonne in June, but they are likely to fall to slightly above $460. Agrium has already indicated that it is reducing prices in North America.

Analysts believe the price cuts will bring other big buyers like China and Brazil back into the market.

“In the short term, this contract breaks the impasse and opens the door to a return of demand around the world. Buyers now have the clarity they need to resume purchasing,” said Chief Executive Bill Doyle.

Potash Corp’s shares rose $6.26 to $95.15 by midday on the New York Stock Exchange. Shares of Mosaic and Agrium rose 6.2 and 5.9 percent, respectively.


Potash Corp second-quarter earnings fell to $187.1 million, or 62 cents a share, from $905.1 million, or $2.82 a share, a year earlier. Analysts, on average, had forecast earnings of 69 cents a share, according to Reuters Estimates.

Potash Corp’s smaller rivals Mosaic Co (MOS.N) and Terra Industries TRA.N also posted sharp declines in profit, and analysts expect other players to announce weak results in the coming weeks.[ID:nN22333827][ID:nN23375299][ID:nN22252462]

The sector booked record profits in the first half of 2008, but its fortunes have turned dramatically in the span of a year. Once-tight fertilizer inventories have ballooned, while prices have collapsed after a steady rise since early in the decade.

Sales of potash, typically Potash Corp’s largest revenue source, crumbled in the quarter, while its phosphate and nitrogen businesses also reported weaker results.

Potash, nitrogen and phosphate, are the three main macro nutrients used by farmers across the globe.

The company now expects full-year earnings per share of $4.00 to $5.00, down from a previous forecast of $7.00 to $8.00 a share. It expects third-quarter earnings between 80 cents per share and $1.20 per share.

Analysts had been expecting the company to earn $5.13 per share for the full year and $1.44 a share for the third quarter.

But the company remains optimistic that potash buyers will return to the market soon. It expects global potash demand in the range of 55 million to 60 million tonnes in 2010.

Analysts doubt demand will bounce back as quickly, as grain prices have fallen sharply from year-ago peaks.

“The directional arrow on soft commodity (grain) prices has gone from pointing firmly upward to pointing firmly downward,” said Morningstar analyst Ben Johnson. “This adds an additional layer of uncertainty, because this is the primary driver of your customers’ purchasing power at the end of the day.” (Additional reporting Chakradhar Adusumilli in Bangalore, Editing by Dinesh Nair and Janet Guttsman)

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