(Reuters) — 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 because of the imminent start-up of new mines.
PotashCorp, the world’s biggest fertilizer producer, has forecast a less profitable year 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.
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Oversupplied conditions may improve between 2020 and 2022, said Agrium chief executive officer Chuck Magro.
Agrium and PotashCorp 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 Canadian 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.
PotashCorp reported its fourth quarter results last week, which included a 22 percent slide in sales.
The company said it expected earnings of 35 to 55 cents per share in 2017, including costs related to its pending merger of five cents per share. The forecast fell well short of analysts’ average expectation of 62 cents a share, according to Thomson Reuters. The midpoint of PotashCorp’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 de-mand and are creeping higher.
PotashCorp expects potash sales to rise in 2017 to 8.7 to 9.4 million tonnes from 8.6 million last year.
“We continue to proactively position the company for opportunity and resiliency in any market conditions,” PotashCorp chief executive officer Jochen Tilk said.
It plans to curtail Canadian production this year.
PotashCorp’s fourth quarter net earnings plunged to $59 million, or seven cents per share, from $201 million, or 24 cents per share, a year earlier.
