(Reuters) — Potash Corp, the world’s biggest fertilizer company, will slash its workforce by 18 percent as it struggles with slumping demand and weak prices.
The cuts will amount to more than 1,000 jobs in Canada, the United States and Trinidad, including 570 positions in its potash operations, the company said Dec. 3.
“The need to become more globally competitive is what’s behind all of these workforce reductions,” said chief executive officer Bill Doyle.
“Our belief in the fundamentals of the business has not changed at all. This is simply an adjustment to the current and foreseeable market conditions.”
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Potash Corp has often acted as the swing producer in the global market, trimming production and putting workers on furlough when demand is weak. The severity of the permanent job cuts, especially in its core potash operations, indicates it is girding for a long-term slump in the potash market.
Doyle said Potash Corp will not cut its dividend, which was raised in May, and has no immediate plans to scale down a share buyback program. The company also intends to complete the 10-year, $8 billion expansion of its Canadian potash mines, slated to wrap up in the next year.
Potash Corp reported its weakest quarter in three years in October and cut its full-year earnings forecast more than expected.
Potash prices have been sliding since mid-summer, when the biggest global producer, Russia’s Uralkali OAO, quit its export partnership with Belaruskali of Belarus and said it would seek to maximize sales volume.
Doyle said he had “no idea” when or if Uralkali and Belaruskali will return to a strategy targeting higher prices and reverse what he has called “the single dumbest thing” he has ever seen.
The turmoil in the usually tightly controlled potash industry, dominated by Uralkali and North America’s Canpotex Ltd. export group, has caused buyers to head for the sidelines to await further price reductions.
“While the (job cuts) announcement blames soft demand in developing markets, we believe the real culprit is the BPC (Uralkali-Belaruskali) breakup and the resulting price declines in both (phosphate and potash),” BGC analyst Mark Gulley said in a note to clients.
Potash demand was weak even before last summer’s spat between Uralkali and Belaruskali. buying from key importers India and China has been particularly sluggish.
Potash demand typically grows three percent annually, but it has been flat since 2007 because of the recession, Doyle said.
He said Indian demand, influenced by government subsidies on fertilizer, is unlikely to improve much until after Indian elections this spring.
He said spot Chinese purchases should resume this month. A contract between Canpotex, which is the export arm of Potash Corp, Mosaic Co. and Agrium Inc., and China’s Sinofert Holdings Ltd. will likely be reached by the end of January, he said.
Potash Corp said it would suspend production at one of its two mills in Lanigan, Sask., by year-end and cut production at its Cory operations. Both operations are in Saskatchewan. It also plans to stop production at its Penobsquis facility in New Brunswick at the end of the 2014 first quarter.
Doyle said the company will still have the ability to supply buyers with more than 10 million tonnes of potash next year, combining production with its large stockpiles.
He could not predict how much potash the company will produce next year, but said this year’s production is likely to amount to 7.75 million tonnes, slightly more than half of the company’s capacity, reflecting output curbs.
“We’ll sell exactly what we were going to sell anyway,” without the job cuts, Doyle said.
“This doesn’t affect in any way our ability to service our customers. We just had too much capacity versus what we were seeing needed in the foreseeable future.”
North American potash stockpiles at the mine level reached 2.8 million tonnes in October, 39 percent higher than the average of the previous five years, according to data on Potash Corp’s website.
Doyle said Potash Corp remains interested in raising its equity stakes in Israel Chemicals Ltd., Chilean potash and iodine producer SQM, Arab Potash Co. and Sinofert. Despite the difficult conditions, it is not looking to sell those investments, he said.
The job cuts also extend to the company’s phosphate and nitrogen operations.
It will close its Suwannee River chemical plant, one of two at its White Springs phosphate facility in Florida, in the second half of 2014.
Potash Corp said it expects potash cost savings of $15 to $20 per tonne next year as a result of the job cuts and operation closures, with a targeted reduction of $20 to $30 per tonne by 2016.
The company’s potash sales fell to 1.5 million tonnes in the third quarter from 2.1 million tonnes a year earlier, while its average realized price dropped 28 percent to $307 per tonne.
The company will take a one-time charge of $70 million related to the job cuts.
