July 17, 2013


Falling fertiliser prices pull down Mosaic's quarterly profits



Mosaic Company's quarterly profits were dragged down by falling prices of phosphate and potash, and it expects a further drop amid soft demand from Indian buyers and a lapsed contract with China.


Depreciation of the Indian currency as well as reduced subsidies by the government there have made imported phosphate and potash fertiliser more expensive for manufacturers and farmers in the biggest phosphate importing country, which relies completely on foreign potash supplies.


The unfavourable conditions in India could last up to a year, or until after the next general election when it may be easier for the government to re-balance fertiliser subsidies, said Mosaic Chief Executive Officer Jim Prokopanko, who sees them likely contributing more for potash and phosphate and less for nitrogen, which is produced domestically.


Mosaic estimated current-quarter potash prices at US$330 to US$360/tonne, compared with an average of US$368 last quarter. It expects realised phosphate prices of US$430 to US$465/tonne. In the just-ended quarter, the average price for di-ammonium phosphate was US$483/tonne. Prokopanko also said he expects overall demand to be strong for the rest of this year, especially in North America and Brazil.


A supply contract between Canpotex Ltd - the offshore selling agency for Mosaic, Potash Corp of Saskatchewan and Agrium Inc - and a subsidiary of China's Sinofert Holdings Ltd expired recently, and Mosaic expects to see a second-half contract in place by the end of the current quarter.


Canpotex is hoping to at least maintain prices at the last contract's level, estimated at US$400/tonne, but Prokopanko hinted China may be seeking a further discount. A lengthy holdout by both China and India in last year's contract talks hurt the miners' profits, swelled supplies and eventually led to potash price discounts.


Mosaic said it would operate at less than 75% capacity at its Canadian potash mines for the third quarter, slightly lower than a year ago, due to maintenance, but would expand curtailments if demand is too soft. Potash Corp has already announced similar steps. Shares of Mosaic dropped 3.75% in midday trading in New York to US$54.02, outpacing the session's losses by Potash Corp and Agrium.


Mosaic is the world's largest producer of finished phosphate products and the second-largest rock phosphate producer. Net earnings for the fiscal fourth quarter ended on May 31 fell to US$486 million, or US$1.14/share, from US$507 million, or US$1.19/share, a year earlier. Analysts on average expected a profit of US$1.13/share, according to Thomson Reuters.


Net sales declined 4.5% to US$2.69 billion, roughly in line with analysts' estimates. Sales volumes hit the top end of Mosaic's forecast for the quarter, while prices fell within the company's range, despite challenging US weather.


The company intends to buy back stock later this year when restrictions expire on shares held by various trusts and family shareholders of agribusiness giant Cargill Inc. Cargill declined last month to amend an agreement to allow for Mosaic to buy the shares earlier.


About 129 million Class A restricted shares - representing 30% of Mosaic - could be up for grabs starting in late November. But Cargill's refusal to give Mosaic an earlier chance at buying back shares does not necessarily suggest that suitors are lining up to buy them, Prokopanko said.


For the current calendar third quarter, Mosaic said it expected to sell 1.8 million to 2.1 million tonnes of potash, compared with 1.8 million a year earlier and 2.6 million tonnes in the prior quarter. The company forecast phosphate sales of 2.9 million to 3.3 million tonnes this quarter, compared with 2.9 million a year earlier and in the last quarter.

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