The deepest slump in a decade for the oversupplied potash fertilizer market may abate only slightly in 2017, major producers say, and could take years to correct due to the imminent startup of new mines.
Potash Corp of Saskatchewan Inc, the world’s biggest fertilizer producer, forecast a less profitable year on Thursday than analysts expected, and reported a surprisingly big drop in quarterly profit.
Potash prices are hovering around their lowest levels since 2007, amid bloated capacity and weakening farm incomes, spurring consolidation. Adding to miners’ problems, several new low-cost mines are scheduled to begin production in coming years.
Oversupplied conditions may improve between 2020 and 2022, said Agrium Chief Executive Officer Chuck Magro, speaking at an investor conference in British Columbia on Wednesday.
Agrium Inc and Potash Corp plan to merge by mid-2017 to cut costs and better compete.
“The markets are very, very competitive right now and (the merger) is the only way that we can compete,” Magro said.
Germany’s K+S AG will ramp up production at its new Western Canada mine this year, while EuroChem begins mining potash in Russia next year.
“We remain concerned these so-called ‘trough’ earnings levels could linger for years,” said BMO analyst Joel Jackson, in a note.
Earlier on Thursday, Potash reported fourth-quarter results which included a 22 percent slide in sales. Its U.S.-listed shares were down 2.7 percent at $19.33 in midmorning, and its outlook also dragged down competitors Agrium and Mosaic.
Potash Corp said it expected earnings of 35 to 55 cents per share in 2017, including costs related to its pending merger of 5 cents per share. The forecast fell well short of analysts’ average expectation of 62 cents a share.
The midpoint of Potash’s 2017 forecast, 45 cents, would be its second-lowest annual profit in 13 years.
Even so, potash prices are weak enough to stimulate strong demand, and are creeping higher.
Potash Corp expects potash sales to rise in 2017 to between 8.7 million and 9.4 million tonnes, from 8.6 million in 2016.
“We continue to proactively position the company for opportunity and resiliency in any market conditions,” Potash CEO Jochen Tilk said in a statement. The company plans to curtail Western Canada production this year.
Potash Corp’s fourth-quarter net earnings plunged to $59 million, or 7 cents per share, from $201 million or 24 cents per share a year earlier.