September 17, 2008 / 6:39 PM / 11 years ago

UPDATE 2-Potash Corp says fertilizer outlook still strong

(Adds details)

By Roberta Rampton

WINNIPEG, Manitoba, Sept 17 (Reuters) - Potash Corp of Saskatchewan POT.TO continues to see strong demand for fertilizer at higher prices and has not seen any substantive changes in business conditions since its July forecast, the company’s chief financial officer said on Wednesday.

The company’s stock has dropped more than 30 percent since it peaked in mid-June because commodities have fallen out of favor with investors, said CFO Wayne Brownlee at a Credit Suisse investor conference in New York.

“For all the noise that’s out there in financial markets, agricultural markets and fertilizer markets, our business is going fine,” Brownlee said.

Potash Corp, the world’s largest fertilizer company, said in July that it expected full-year earnings of $12 to $13 per share, up from an April estimate of $9.50 to $10.50.

Potash shares were up 2.6 percent at C$179.36 on the Toronto Stock Exchange on Wednesday.

The company said last week it would buy back up to 10 percent of its float because the shares are undervalued.

Potash prices have more than tripled to levels above $1,000 a tonne this year and inventories have been stretched to record-thin levels.

At one point last week, there was only 75,000 tonnes of inventory in North America at a time when there should have been 1 million tonnes, Brownlee said.

Potash producers are unable to supply 8 to 10 percent of world demand this year, or a total of 3 million to 4 million tonnes, mainly in China, Brownlee said.

“We think there’s actually a chance that you’re going to see potash be short for the next five years,” he said.

Potash Corp plans to boost capacity by 80 percent in the next five to seven years to try to fill the gap, he said.

The company had expected to mine 10.2 million tonnes of potash this year, although a strike by about 500 workers at three of its mines could cut into that total, Brownlee said.

The mines account for about 30 percent of Potash Corp production and about 6 percent of world supplies.

Workers walked off the job on Aug 7, and the United Steelworkers union said it has prepared for a long fight by ordering winterized trailers for the picket lines.

The union passed out leaflets outside the conference urging investors to tell Brownlee to end the strike.

Potash prices face less risk from capacity expansion than they would if corn prices dropped by half or if offshore economies slowed because of price inflation, Brownlee said.

“How much can you charge for iron ore, for oil, for coal, for soybean oil to China ... and keep ratcheting it up before that commodity price inflation on a cumulative basis actually sort of subdues that growth in these offshore marketplaces?” he asked.

The company could look at expanding its nitrogen fertilizer operations for the right “opportunistic” price, Brownlee said.

A Saskatchewan nitrogen plant sold in July to Norwegian producer Yara International ASA (YAR.OL) for C$1.6 billion was priced too high for Potash Corp to contemplate, he said.

$1=$1.07 Canadian Reporting by Roberta Rampton; editing by Rob Wilson

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