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RBC Says Potash Plunge Will Curb Saskatchewan Growth

July 30 (Bloomberg) -- Saskatchewan’s economy may grow half as quickly as projected after OAO Uralkali, the world’s largest potash producer, broke up a cartel that controlled 43 percent of world exports, Royal Bank of Canada said in a note.

A “double digit” decline in potash production from the Canadian province could reduce Saskatchewan’s gross domestic product by 1 percentage point in 2013, Paul Ferley, assistant chief economist at Royal Bank, said in a report. Stalled construction in the industry may shave another 0.5 percentage points from growth, which Royal Bank had estimated at 2.9 percent this year, he said.

“Today’s developments will have a more significant impact on the province of Saskatchewan rather than the overall Canadian economy,” Ferley said. The “combined hit to mining and construction has the potential to halve growth in Saskatchewan.”

Royal Bank estimates that potash makes up 17 percent of exports in Saskatchewan, the biggest producer of the crop nutrient in Canada.

Saskatchewan forecast its economy would grow 2.6 percent this year in part due to a rebound in potash production, according to the 2013 budget. The provincial government expected potash revenue would be C$519.9 million ($505 million), an increase of C$122.5 million from the previous year. A C$50 change in the average potash price per tonne results in a C$130.6 million change in royalties, the government said. Potash royalties account for about 4.5 percent of the province’s revenue of C$11.6 billion, according to the fiscal plan.

Update Forecast

Saskatchewan’s government will be speaking with potash producers to get a better understanding of the potential impact, spokeswoman Kathy Young said in an e-mailed statement. The province will update any changes to potash revenue when it releases its first-quarter financial report in August, she said.

“It is too soon to know the potential impact of today’s announcement by OAO Uralkali on price, production and provincial potash revenues here in Saskatchewan,” Young said in the statement.

Potash Corp. of Saskatchewan Inc., Canada’s largest maker of the fertilizer, plunged as much as 26 percent, and was trading 18 percent lower to C$31.88 at 2:15 p.m. in Toronto.

To contact the reporters on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net; Jen Skerritt in Winnipeg at jskerritt1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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