Potash Corp. Cuts Production as Fertilizer Market Weakens

  • Penobsquis closing brought forward, other shutdowns planned
  • Currency volatility affecting demand in Latin America, India

Potash Corp. of Saskatchewan, the world’s largest fertilizer producer by market value, cut its full-year profit forecast as weaker demand in emerging markets prompted it to trim output at some of its Canadian mines.

The company sees demand for its namesake crop nutrient falling in Latin America from last year’s record level because of currency volatility. The same factor is also behind its decision to reduce its forecast for Indian demand, while shipments are expected to be lower in North America.

In response, the Saskatoon, Saskatchewan-based company said Thursday it’s accelerating the permanent closing of its Penobsquis, New Brunswick, mine while also starting temporary shutdowns in December at three Saskatchewan pits, reducing production in the current quarter by almost 500,000 metric tons. The move follows that of U.S. potash producer Mosaic Co., which last month announced it will reduce output.

“Potash Corp. is taking the necessary step of lowering potash production to meet demand,” Paul Massoud, a Washington-based analyst at Stifel Nicolaus & Co. who recommends buying the shares, said in a note.

Earnings excluding one-time items in 2015 are now expected to be $1.55 to $1.65 a share, the company said in a statement. That compares with its July prediction of $1.75 to $1.95 and the $1.74 average of 26 analysts’ estimates compiled by Bloomberg. The shares fell 2.8 percent to $20.72 in New York.

Price Drop

Farmers, pinched by lower crop prices, are cutting expenditures on fertilizers, contributing to a 22 percent drop in spot prices for potash this year. The same thing is happening in seeds and pesticides. Crop-chemical and seed makers DuPont Co., Monsanto Co. and Syngenta AG have said their earnings will be hurt by weaker agriculture markets and the stronger dollar.

“Fertilizer buyers are sitting on their hands as prices continue to drop,” Christopher Perrella, a Skillman, New Jersey-based analyst at Bloomberg Intelligence, said by phone Wednesday.

Potash Corp. also reported third-quarter earnings excluding one-time items of 37 cents a share, trailing the average estimate of 38 cents. Its realized average potash price was $250 a ton in the period, 11 percent lower than a year earlier. Prices for the company’s nitrogen fertilizers fell 10 percent on average while those for phosphate-based crop nutrients climbed 4.1 percent.

K+S Bid

The reduced full-year forecast implies fourth-quarter earnings of 27 cents to 37 cents a share, Stifel Nicolaus’s Massoud said, less than the 43-cent average analyst estimate.

Earlier this month, Potash Corp. withdrew its 7.85 billion-euro ($8.59 billion) offer for K+S AG after pursuing the German potash producer for about a year. The Canadian company cited declines in commodity and equity markets as well as a lack of engagement by the management at K+S, which had rejected the bid.

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