Labour costs dog potash expansionsPosted May. 31st, 2013 bySean Pratt
Market supply also an issue | Too many mines would create oversupply, lower price
Fertilizer manufacturers are rethinking or delaying expansions and new construction projects in Saskatchewan because of escalating labour costs and a looming excess supply of potash.?Mosaic is the latest company to pull back on the reins. In a recent conference call with investors, chief financial officer Larry Stranghoener said the company was postponing Phase 2 of its potash expansion project. Phase 2 of the $6 billion expansion project involved increasing production capacity by one million tonnes each at the company’s Sask-atchewan mines in Belle Plaine and Colonsay.?Stranghoener said the project was being put on hold because of unfavourable market conditions and rising labour costs. Mosaic intends to wait a year or two in hopes that labour costs will drop and that there will be more clarity about the long-term supply picture in the potash industry.?Mosaic’s announcement comes on the heels of Yara International saying it was rethinking plans to add 1.3 million tonnes of urea production capacity to its plant near Belle Plaine., Sask.?“The price or cost increase in Canada is above what we had expected, and we are now negotiating with the different contractors to see how we potentially can get the costs down,” said Yara president Jorgen Ole Haslestad.“If we are not able to make it commercially viable, then we will not build.”?K+S Potash Canada is also facing delays and rising costs on the Legacy mine it is building near Moose Jaw, Sask. ?The company issued a news release in April saying it had pushed back the planned opening of the plant until the summer of 2016 from the original target of the end of 2015. The budget for the two million tonne mine has escalated to $4.1 billion from $3.25 billion.?Brazilian mining company Vale SA announced last summer it was postponing a $3 billion project to build a potash mine near Kronau, Sask., capable of producing 2.9 million tonnes annually.?There is also speculation that the biggest Saskatchewan mine project may be shelved. A Globe & Mail business columnist said BHP Billiton’s new boss, Andrew Mackenzie, sounds like he is backing away from the $14 billion project to build the world’s largest potash mine in Jansen, Sask.?PotashCorp president Bill Doyle recently said new construction projects such as the mine proposed by BHP Billiton do not make economic sense in today’s marketplace.?Saskatchewan energy and resources minister Tim McMillan said the province is aware of the business community’s concerns over escalating labour costs.?“I meet with many players in the oil and gas and mining sector and the labour shortage is something that is raised with me on a regular basis,” he said. “When you see wages rising the way they have in our province, that’s a good thing, but it also effects investment decisions.”?Saskatchewan’s average hourly wage for construction workers has risen 25 percent over the last six years compared to a 15 percent increase across Canada, but it remains lower than the national average. The average hourly wage for a construction worker in Saskatchewan in March 2013 was $25.78 compared to $26.54 for Canada and $26.06 in the United States. Saskatchewan has the lowest unemployment rate in the country. The province is trying to recruit workers from other provinces as well as further afield.?“We are maximizing our Saskatchewan immigrant nominee program and working with the federal government to enhance it,” said McMillan.?On May 21, the federal government increased the program’s cap for Sask-atchewan by 450 to 4,450 per year. He said the government is also doing everything it can to address the skilled labour shortage at home. Since forming government, the Saskatchewan Party has invested $4.2 billion on post-secondary education, a 40 percent increase since 2007-08. It has also invested in training and development programs for workers. The provincial NDP was contacted for this story but did not respond.?McMillan remains hopeful that the projects that are being re-evaluated will eventually come to fruition. “It’s possible that they’re looking to time their expansions when other expansions are winding down.”?Saskatchewan’s employment demand is forecast to peak in 2015, based on expected construction projects, after which labour supply and demand should be in closer balance, according to the Saskatchewan Construction Association.