April 29, 2012

 

PotashCorp slashes guidance after worst start to 2012

 

 

Despite supporting observations from rival Mosaic over a rebound in demand over the last month, PotashCorp has been prompted to cut its guidance for profits, and sales, over the full year after a worse-than-expected start to 2012.

 

Shares in the Canada-based group, the world's biggest potash group by capacity, fell 3% in early deals.

 

PotashCorp, which in January unveiled profits short of market expectations, acknowledged that it had remained too optimistic over the potash market's recovery from weakness prompted by world economy jitters and a fall in crop prices.

 

"Although we anticipated that an increase in global fertiliser purchasing would not take hold until the latter half of the first quarter, it took longer than we expected for demand to emerge," Bill Doyle, the PotashCorp chief executive, said.

 

With "buyers on all major potash markets slow to commit to new purchases", the group's sales of potash, by volume, plunged by more than one-half to 1.2 million tonnes in the January-March period, compared with the same period in 2011.

 

"Most dealers chose to defer major purchasing decisions rather than build inventory," the group said.

 

The market had recovered since China the top importer, last month agreed a potash deal, surprising many observers who had expected the country to extend negotiations in the hope of a better price.

 

"After this development… customers in most major markets were actively securing new supply to satisfy pent-up demand for potash," the group said.

 

Doyle said that an "acceleration" in potash demand, "that began at the very end of the quarter will continue, supporting increased volumes through the remainder of the year".

 

Fertiliser dealers were "now beginning to secure products to meet strong demand at the farm level", PotashCorp said, in comments which echo observations from Mosaic earlier this week of a recovering market.

 

However, the recovery would not be enough to keep PotashCorp on track to hit earlier estimates, the group acknowledged, after the first quarter slowdown fostered a 33% slump to US$491 million earnings, on sales down 21% at US$1.75 billion. While phosphate revenues rose by 13.0% to US$572 million - making the group, unusually, a bigger seller of phosphate than potash - the rise was insufficient to offset a near-halving in takings from the group's main nutrient.

 

Earnings per share for the first quarter came in at US$0.56 a share, below the US$0.63 a share that investors had expected. For the full year, PotashCorp cut to US$3.20-3.60 a share, from US$3.40-4.00 a share, its earnings forecast.

 

The group also put a potential drop in world industry potash sales on the cards for this year, lowering its forecast for trade 53-56 million tonnes, from 55-58 million. Last year's total was 55 million tonnes, according to PotashCorp. The group's shares closed 3.1% lower at US$42.87 in New York.