January 27, 2012

 

PotashCorp slashes global potash sector's forecasts

 

 

Amid a market downturn, PotashCorp sliced its estimates for the potash industry worldwide and had cut sales of all three major nutrients in late 2011, leaving its profits under investors' expectations.

 

However, shares in the Canada-based group, the world's top potash producer by capacity, avoided the poor opening that many investors had expected, and stood 1% higher at US$45.70 in early deals in New York.

 

"The drag of global economic concerns shook the confidence of fertiliser buyers and caused a greater decline in fourth-quarter demand than we had anticipated," Bill Doyle, the PotashCorp chief executive, said.

 

The demand slowdown, which PotashCorp said was "not easily predictable as we entered the fourth quarter of 2011", had landed the group with lower sales, by volume, of nitrogen, phosphate and potash in the period.

 

Potash sales slumped by one-third year on year to 1.6 million tonnes, with North American buyers proving "especially cautious" and halving purchases to 400,000 tonnes.

 

The "lull in purchasing" prompted the group to cut by two million tonnes to 55 million tonnes its estimate for worldwide industry potash sales last year.

 

The forecast for 2012 sales was cut to 55-58 million tonnes, from 58-60 million tonnes, albeit a range still enough to leave the sector likely looking at a record.

 

Imports by India, a major buyer which failed a few weeks ago to renegotiate potash contracts, were likely to be limited to about 4-5 million tonnes compared with more than six million tonnes in 2010, as uncertainty over government subsidies, a weak rupee and higher retail prices of the fertiliser "limit near-term growth".

 

The slowdown underlined decisions by PotashCorp to idle some operations, meeting a company strategy of matching output to demand.

 

PotashCorp reported a 13.6% decline, to US$718 million, in sales of potash during the October-to-December period, compared with the same period a year before, reflecting the lower volumes.

 

Compared with the July-to-September period, selling prices fell too, by US$20 a tonne to US$431 a tonne.

 

However, higher sales, by revenue, in nitrogen and phosphate helped group takings rise 2.9% to US$1.87 billion.

 

Earnings rose 34% to US$683 million, equivalent to US$0.78 a share, a figure within the group's target range but below the US$0.88 a share that analysts had forecast.

 

Doyle said that the outlook for the industry remained bright despite its "short-term challenges", stressing the world's "need to improve crop yields" to meet rising demand for food.

 

"The return on fertiliser investment continues to be attractive to farmers worldwide and is expected to result in greater demand in the quarters ahead," he said.

 

Potash buying patterns this year will prove the reverse of 2011, and see a weak start give way to a stronger finish.

 

The group forecast earnings per share coming in at US$0.50-$0.70 a share for the current quarter, and US$3.40-$4.00 a share for the full year, also figures below those analysts have predicted.