Potash Corp. of Saskatchewan Inc.’s decision to cut 18 percent of its workforce and reduce capacity probably foreshadows similar actions by North American rivals amid a price war in the $20 billion global potash market.
Potash Corp., the world’s largest fertilizer company by market value, said yesterday it will close a Canadian potash mine, lower output at another and halt a processing mill. Calgary-based Agrium Inc. and Mosaic Co. of Plymouth, Minnesota, are likely to follow with job and capacity cuts, said Peter Prattas, an analyst at Cantor Fitzgerald LP, and Mark Gulley, an analyst at BGC Partners LP.
"Something has to give," Gulley said yesterday in a telephone interview from New York. "They have to be looking at the same issues in terms of price and profit-margin pressure."
The potash industry has been in turmoil since the end of July when Russia’s OAO Uralkali, which produced more of the crop nutrient last year than any other company, quit a sales accord with its Belarusian competitor. Uralkali’s strategy now is to raise output to gain a bigger market share. That’s spurred some customers to defer purchases in anticipation of lower prices.
Richard Downey, an Agrium spokesman, declined to comment on whether his company plans moves similar to those of Saskatoon, Saskatchewan-based Potash Corp. He said Agrium is constantly monitoring costs and in October announced a plan to lower costs and increase returns.
"We always monitor market conditions and align our resources to meet both short- and long-term demand, while remaining cost-competitive," Rob Litt, a Mosaic spokesman, said by e-mail.
Potash is a form of potassium used by farmers to strengthen plant roots and boost resistance to drought. Global sales are valued at about $20 billion a year, according Neil Fleishman, an analyst at Green Markets. The market is dominated by producers in North America and the former Soviet Union.
Exports from Agrium, Mosaic and Potash Corp. are coordinated via their Canpotex Ltd. joint venture. Uralkali and Belaruskali, the state-owned supplier in Belarus, had a similar venture until July 30 when the Russian company ended the accord.
Potash Corp. said yesterday it will eliminate about 1,045 jobs at its potash and phosphate-fertilizer operations in Canada, the U.S. and Trinidad. The job losses are the worst for the company’s potash division since 1987, Chief Executive Officer Bill Doyle said in a telephone interview yesterday.
The company will stop production at the Penobsquis mine in New Brunswick, suspend output at one of two mills in Lanigan, Saskatchewan, and reduce output at its Cory plant, also in Saskatchewan.
Potash Corp. said yesterday in a statement its inventories and remaining capacity will allow it to supply more than 10 million tons of potash in 2014. Its previous forecast was for capacity of 13 million tons next year.
"We don’t believe this changes the prevailing outlook for lower potash pricing and high competition among the producers of Canpotex, Russia, Belarus," Matthew Korn, a New York-based analyst at Barclays Plc, said yesterday in a note.
U.S. retail potash prices have fallen 14 percent since July 30, when Uralkali quit its sales accord and said it would increase output, according to data from DTN Energy. Potash Corp. said it received an average of $307 a ton for third-quarter sales, down 28 percent from a year earlier. Korn sees Asian potash prices averaging $300 through 2017.
Gross per-ton margins at Potash Corp.’s potash business dropped 45 percent to $148 a ton in the third quarter. The company said the measures announced yesterday will help to reduce its potash costs by $15 to $20 a ton next year.
Potash Corp. was little changed at C$33.85 at 9:42 a.m. in Toronto trading. The shares have dropped 16 percent this year while the S&P/TSX Materials Index has declined 34 percent. Agrium, which also has a farm-retail unit, has declined 2 percent in 2013, while Mosaic is down 16 percent in New York in the same period.
Profitability at Mosaic, the largest North American producer after Potash Corp., also has come under pressure, its third-quarter potash gross margin sliding 59 percent to $184 million.
Agrium’s potash gross profit rose to $27 million in the quarter, up from $23 million a year earlier, partly because of a shorter maintenance shutdown period. The company operates just one mine, near Vanscoy in Saskatchewan, making it the smallest of the three Canpotex members.
"None of the fertilizer producers are insulated," Cantor’s Prattas said yesterday in a phone interview from Toronto. "All are impacted by lower prices and lower volumes."
Doyle sees growth next year in Brazil, China and India. He said yesterday that global demand will rise to 56 million to 58 million tons, up from an estimated 52 million tons in 2013.
"We have ample capability to supply that market," Doyle said, referring to his 2014 projection. "Even if it’s much better than we expect, which we don’t believe, we’d have the ability to respond."