RE:RE:right on 960,000..... lotza volume as Ferti wanted... Don’t get too caught up in potash drama, daily headlines - Doyle
The potash business is always competitive, and prices always react to supply demand/changes, says CEO Bill Doyle, stressing PotashCorp’s strong performance track record “in a multitude of market conditions.”
Author: Dorothy Kosich
Posted: Monday , 28 Oct 2013
RENO (MINEWEB) -
The decision of Uralkali to leave the Belarus Potash Company joint venture to sell potash to the global market has dropped potash prices and substantially hurt PotashCorp’s bottom line for this year.
Nevertheless, PotashCorp CEO, Bill Doyle, recently suggested to analysts that the market could have over-reacted to the breakup of Belaruskali.
“Historically, the third quarter brings a seasonal slowdown and it was exaggerated in potash this year by Uralkali’s announced changes in sales strategy at the very end of July,” he observed. “This created tremendous market uncertainty.”
“The events of the third quarter not only had an impact on our performance, it caused some investors to reassess prospects for the industry and the value of our company. We understood that, but we cautioned against getting too caught up in the drama and daily headlines,” he said.
“Admittedly, the recent slowdown in potash demand and decline in pricing have been challenging, but that does not mean the prospects for our industry have forever changed,” Doyle noted. “The fundamental realities of food production and soil fertility continue to underpin our business.”
“Despite recent market uncertainty, demand has emerged in both United States and Latin America’s growers entered their planning or application windows. In these markets, we see farmers focused on improving the financial return on every acre and protecting the value of their soil. This has been the case in Brazil where product has moved to the farm at a robust pace as growers are in the field planning.”
“Although customers in Brazil are likely to take a more measured approach through the fourth quarter, fertilizer shipments for the year including potash are on track to reach record levels,” said Doyle.
In his analysis, Doyle observed that harvest progression and weather “will play an important role in determining how the season unfolds. Potash deferrals were most pronounced in China and India during the third quarter and that continues to be the case with both countries taking a wait-and-see approach.”
Canpotex is expected to have sales to China in the fourth quarter, said Doyle. “While negotiations continue on new contracts, we believe deferrals through October have resulted in a drawdown of inventories and create the potential for increased requirement in the new year.”
In other Asian countries, Canpotex is beginning to see customers resume purchasing potash. “It is a highly competitive market, but Canpotex remains well positioned to serve customers in this important region.”
However, in India, buyers continue to face subsidiary and currency challenges, Doyle noted. “Canpotex has contracts with India, they run through March of 2014, but the timing and terms on remaining shipments that have contracted tonnage through the balance of this year are uncertain at this time.”
These third quarter impacts sent PotashCorp’s earnings plunging 45% in the third quarter, forcing the company to reduce its 2013 estimate for global potash demand to a range of 53 million to 54 million tonnes, down from the originally forecast 56 million tonnes, and also dropped its full-year sales volume forecast to 8 million tonnes to 8.4 million tonnes from a previous range of 8.5 million to 9.2 million tonnes. The impact of the lower potash sales volumes and reduced price expectations for all three nutrients has results in a downgrade of full-year earnings to $2 to $2.20 per share from the original forecast $2.45-$2.70 per share.
Nonetheless, Doyle observed, “Buyer caution during uncertain times is predictable and understandable and investors tend to react the same way. We have seen this pattern many times over the years and history has shown that buyer deferrals are generally followed by growth and demand.”
For 2014, PotashCorp advises global potash demand could reach 55 million tonnes to 58 million tonnes. “We know investors would like a more specific timeline and when buyer engagement will return to normal and how quickly the price trend will reverse,” said Doyle. “Market timing is unpredictable so our focus is always on the best way to manage our business through these choppy waters.”
“The Uralkali announcements created waves; some people suggested that we are entering a new competitive environment in the potash business,” he observed. “Our business has always been competitive, prices have always reacted to changes in supply demand and our company has a track record of strong performance in a multitude of market conditions.”
FINANCIALS
For the third quarter of the year PotashCorp reported net earnings of $356 million or 41-cents per share, down from net earnings of $645 million or 74-cents per share in the third-quarter 2012. The lower earnings were attributed to weaker prices for all three nutrients—nitrogen, phosphate and potash—as well as lower potash sales volumes.
For the first nine month of this year, PotashCorp reported net earnings of $1.6 billion or $1.77 per share, down 6% from net earnings of $1.7 billion or $1.89 per share for the same period of last year