Inputs Monitor Editor Davis Michaelsen adds his perspective into the happenings of the inputs markets.
Canpotex Players Lagging -- Potash Isn't Paying the Bills
Nov 16, 2012
Canpotex is feeling the pinch from swelling potash inventories and waning demand. Potashcorp, Mosaic and Agrium are the three mastheads of Canpotex and World events have affected each of the three to different degrees. North American demand has been good this year through the fall application season, but more product needs to move out of Saskatchewan to make Canpotex's fiscal benchmarks.
Late in the summer, Canpotex, historically, has been a major supplier of potash to India and China. Typical August/September contracts have moved 3-5 million tonnes of product from Canada to China, India and other Asian markets. It is no secret by now that these Asian markets are not going to place orders, and have already started to put low price demands on upcoming shipments.
The loss of the fall shipment to Asia has taken it's toll on Canpotex, and the degree to which each of the big three rely on potash revenue dictates how much the present situation will affect each.
PotashCorp (POT) has the most to lose as the company's main focus is on potash. As part of Canpotex, PotashCorp provides 58% of the potash the company exports. POT has mines in several locations and has announced shutdowns in four of the Saskatchewan mines currently in operation. The shutdowns have already started and will continue until February 2013 -- or until a large export order crosses the desk, and POT can move a mountain of product and resume regular production levels.
PotashCorp's Q3 2012 earnings report states, "The decline from 2011’s third quarter was primarily the result of weaker phosphate margins and reduced offshore potash sales due to the delay of new supply contracts with China and India. Our gross margin for the first three quarters of 2012 reached $2.8 billion, which compared to $3.4 billion generated in the same period last year.
Mosaic (MOS) provides 37% of the potash Canpotex exports but is reporting problems of its own. The same spike in inventory and dip in international demand that has POT skidding to a halt has inspired production slowdowns at Mosaic as well. While Mosaic holds a more balanced nutrient production profile, potash is still the golden egg at Mosaic. Production slowdowns have been announced, but at least the factories are still open. The company reports that slumping demand for potash has spilled over into the phosphate market as well.
Mosaic President and Chief Executive Officer Jim Prokopanko remarked, "In the short term, we are seeing lower than expected shipments to the export market, in spite of very strong demand in North America for the fall application season. As a result, we have lowered our volume guidance for both the Phosphates and Potash segments in the second fiscal quarter of 2013 while also tightening the price forecasts to the upper end of the previously announced ranges."
Agrium (AGU) is likely to be the least affected by low potash demand. AGU not only carries both a retail and a wholesale division, but also focuses more on nitrogen-based fertilizers than the other two -- providing only 9% of Canpotex's total potash output.
"Our results this quarter were impacted by the downtime at our potash operations associated with our substantial potash mine expansion and a weaker potash market stemming from uncertainties from ongoing negotiations with India and China," said Mike Wilson, Agrium President and CEO. "Agrium’s third quarter results demonstrated our competitive strengths in nitrogen and the ability of our Retail business to deliver solid earnings, even given the early spring season and after experiencing one of the worst droughts in U.S. history."
When the Dow plummeted after the November 6th U.S. Presidential elections, inputs went with it. Down times are bound to crop up now and again. All three Canpotex members have fared moderately well in this sanguine post-election market.
As of now...
- PotashCorp (POT) sliding toward the lowside -- 0.52 lower today to $37.07. POT fell sharply on news of further production shutdowns on Wednesday this week and has trailed toward the lowside since.
- Mosaic (MOS) dropped off Wednesday along with PotashCorp on its own news of production slowdowns -- dead even on the day adding 0.00 after the fat lady sang to end the day where it started at $49.12.
- Agrium Inc. (AGU) came out on top today after testing the downside before noon and added 1.10 before moderating sideways to end the day up 0.20 at $97.06.
The technicals clearly show what the fundamentals suggest -- the potash market has been rough on nutrient producers and the fiscal damage is proportional to the stake each holds in potash. In this 'bust' phase of the season, it may be difficult to be optimistic for Canadian workers spending the holidays off work. But business will pick up in the spring, and if India and China have any import catch-up to play, Canadian potash workers will more than make up the difference in overtime pay this spring.