Potash Corp. Forecasts 2012 Earnings That Trail Estimates

Potash Corp. Cuts Full-Year Earnings Forecast on Contract Delays
Potash is stored in a warehouse at the Potash Corp. of Saskatchewan Lanigan mine in Lanigan, Sasketchewan. Photographer: Geoff Howe/Bloomberg

Potash Corp. of Saskatchewan Inc., the world’s largest fertilizer producer, forecast full-year profit below analysts’ estimates after delays in supply contracts in China and India reduced sales.

“Earnings guidance for full-year 2012 will fall below the low end of the previous range of $2.80 to $3.20 per share,” the Saskatoon, Saskatchewan-based company said in a statement today. Analysts had projected profit excluding one-time items of $3.25 a share, the average of 26 estimates compiled by Bloomberg.

Plentiful stockpiles of potash, a form of potassium used to strengthen plant roots and protect against drought, are undermining efforts by Potash Corp. and other producers of the crop nutrient to renew contracts with buyers in China and India, said Jason Miner, a Princeton, New Jersey-based chemicals analyst for Bloomberg Industries.

“The forecast cut confirms lackluster global potash demand in the second half of this year,” Miner said today in a phone interview. “It fits with soft prices worldwide and signs of inventory buildups.”

Third-quarter profit is expected to be at the low end of the 70 to 90-cent range previously given, Potash Corp. said. The company will halt production at two of its potash mines in Saskatchewan for about eight weeks each, according to a statement today its website. The Rocanville mine will be idle from Dec. 2 to Jan. 26 while Lanigan will shut Nov. 18 to Jan. 12, the company said.

Holding Out

Potash Corp. competitor Mosaic Co. said earlier this month that China may not sign a supply agreement with North America’s largest producers until next year as it holds out for a lower price than the one agreed to in the first half.

Mosaic, Potash Corp. and Agrium Inc., North America’s largest fertilizer producers, negotiate offshore potash exports through Canpotex Ltd., their jointly owned international trading arm.

In recent years, Canpotex has offered China and India discounts because the large volumes they purchase spawn operational and planning efficiencies for the marketing company, Mark Connelly, a New York-based analyst at Credit Agricole Securities USA Inc., said today in a note to clients.

“We think Canpotex should cancel the current round of negotiations, and move to an undiscounted, spot-basis of negotiation,” he said. “Shareowners are not well-served by giving discounts to customers whose purchasing patterns create inefficiency.”

Belarus Imports

Potash Corp. rose a penny to C$41.12 at the close in Toronto. The shares have declined 2.4 percent this year.

China is “very determined” to pay less than the $470 a metric ton it negotiated for the first six months of 2012, Mosaic Chief Executive Officer Jim Prokopanko said in an Oct. 2 telephone interview. The country is being helped in the standoff by an increase in imports by rail from Belarus, he said.

“With no stabilizer in sight, and as the threat of a potash ‘holiday’ in China and India has become the most likely scenario given current market conditions, we expect lower potash prices in 2013 when contracts are eventually settled,” Jacob Bout, a Toronto-based analyst at CIBC World Markets, said in an Oct. 15 note to clients.

Potash Corp. said it will discuss full-year guidance in its third-quarter earnings statement and conference call on Oct. 25.

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