Mines closed | Analyst says the fertilizer company’s drastic action should blunt the impact of a recent cartel collapse
Production cutbacks by the world’s largest potash producer should keep prices from falling further, says an analyst.
PotashCorp announced last week that it was laying off 1,045 people, or 18 percent of its workforce.
A little more than half of those layoffs will occur in the company’s potash business, including 440 jobs in Saskatchewan.
PotashCorp chief executive officer Bill Doyle said the job losses were due to slumping global demand for potash and phosphate.
“A significant portion of fertilizer demand comes from developing markets, where growth has been less robust than expected,” he said in a videotaped message on the company’s website.
The company is suspending potash production at one of its two Lanigan mines and reducing production at its Cory facility by year end. The Lanigan mill has an annual production capacity of 1.7 million tonnes, and the Cory mine’s capacity is 2.7 million tonnes.
In addition, it is stopping production at its facility in Penobsquis, N.B., at the end of the first quarter of this year, which has a capacity of 800,000 tonnes.
“What this will do is it will help firm the (potash) market and probably keep it from falling a whole lot further,” said David Asbridge, president of NPK Fertilizer Advisory Service.
PotashCorp spokesperson Bill Johnson said the company will still have plenty of capacity to meet grower needs. The company’s annual capacity before the curtailment was 13 million tonnes. Demand is expected to be eight million tonnes this year.
The company estimates it will have 10 million tonnes of total potash supply, including inventory, to meet customer needs next year.
“We have the ability to produce far more than the market is currently willing to buy from us,” said Johnson.
PotashCorp’s production cutbacks should help offset some of the price-damping actions of Uralkali, a Russian potash producer that has been ramping up production after the demise of Belarusian Potash Co. (BPC), a marketing cartel between Uralkali and Belaruskali, a potash producer in Belarus.
Potash prices have been plummeting in the wake of the cartel’s collapse. Uralkali sold 500,000 tonnes of potash to China in October at a price analysts believe was $350 per tonne, which is $50 per tonne below the contracted price negotiated earlier in the year by BPC.
There are rumours that Uralkali is about to sign another large contract in January to supply China with potash at a price of around $325 per tonne, said Asbridge. He believes that deal could be for 1.5 to three million tonnes of potash.
“That was going to kind of set the market tone,” he said.
However, with the world’s largest potash producer now idling a significant amount of capacity, he believes the price of the China deal may bump back up to $350 per tonne.
PotashCorp said the Lanigan and Cory mines will run at reduced staffing levels but could ramp up production if market conditions improve.
This was the second production curtailment announcement of the year. In July, the company issued a news release saying it was reducing production by 3.5 million tonnes annually through regular maintenance shutdowns, extended shutdowns and running at reduced operating rates.
Another price stabilizing influence in the potash market is the recent announcement that Russia-based fertilizer company Uralchem has bought a 20 percent share in Uralkali, prompting analysts to speculate that the Russia-Belarus potash war could be ending.
Asbridge said it may take a while for potash prices to firm because not much buying is going on right now. Fall field work is almost complete in the United States.
He expects prices may continue to fall for a while and then head up in the spring as China starts buying North American supplies and U.S. farmers return to the fields.
Asbridge believes there was a good fall fertilizer season in the U.S., which should draw down some of the excess potash inventory in the countryside.
“We do expect a little bit of a price rise going into the spring, but nothing real significant. Maybe $20 to $25 (a tonne) from where it is now,” he said.
All of the recent turmoil in the potash market may have BHP Billiton rethinking its Jansen mine project, said Asbridge.
In August, BHP Billiton announced it was investing a further $2.6 billion in the project, bringing its total commitment to $3.8 billion.
“I think that project will still get built but probably what will happen now is they may slow it down even further,” said Asbridge.
PotashCorp also announced it will close one of the two chemical plants at its phosphate facility near White Springs, Florida, in the second half of 2014. The loss in capacity will be partially offset by higher operating rates at its phosphate plant in Aurora, North Carolina.