Potash shows signs of recovery

Vancouver – Potash prices are a far cry from the heights reached in 2008, but signs of recovery continue to emerge. Producers are reporting solid increases in demand during the last quarter of 2009, though profits were hit by continued low prices.

In the latest potash news, Canpotex, the world’s largest exporter of potash, arranged to sell all of its remaining marketed potash for the quarter to China’s Hong Kong-listed Sinofert, which will buy 350,000 tonnes. Canpotex declined to divulge the sale price of the potash, stating only that it will be sold at ‘competitive prices’. Canpotex, which is the export arm of Potash Corporation of Saskatchewan (POT-T), Agrium (AGU-T) and Mosaic (MOS-N), had previously delayed a deal with Sinofert in the hopes of achieving a higher sale price.

Meanwhile, major competitor Belarussian Potash agreed to sell 1 million tonnes to China at $350 a tonne in December, but raised its spot price to $410 in early February. The Minsk-based company, which accounts for about 30% of global potash sales, is predicting overall sales will increase 50% this year.

Potash had been selling at a peak of around US$900 a tonne in 2008 before making a steady decline to around US$460 by December for the Vancouver spot price and then dropping further to US$345 in January. This appears to finally be the bottom of the plunge, according to Bank of Nova Scotia economist and commodity researcher Patricia Mohr, though these prices are still far from the $150 a tonne potash was selling at only a few years ago.

The peak prices of 2008 led farmers to rebel against high prices for all fertilizers in 2009, with shipments of potash down 40%, phosphates 30% and nitrogen 10%. Nitrogen decreased less as it requires more frequent application than the other two.

Potash Corp., the global leader in the sector, reported that its sales in 2009 were the lowest since becoming a publicly traded company in 1989. Fourth-quarter profit was down 69% compared to the same quarter in 2008, from $788 million to $243.6 million. Profit per share for the quarter was 80¢, from $2.56 for the same quarter last year, while the company earned a whopping $11 per share for 2008 as a whole. The 1.1 million tonnes Potash Corp. produced in the last quarter of 2009 was 46% less than the 2.1 million produced in the last quarter of 2008, but it still represents an improvement over the rest of 2009, when only 1.9 million tonnes of potash was sold in the first three quarters.

Agrium also reported a major drop in fourth quarter earnings, from US$124 million for the quarter in 2008 to US$30 million in the last months of 2009. The drop was due in part to hedge losses of US$35 million and a US$34-million expense in stock-based compensation, but even with those factored in quarterly earnings were down to US$84 million. But there, too, were signs of improvement, with Agrium’s sales for the quarter up 35%, 69% and 25% for nitrogen, phosphate and potash respectively, compared with the same quarter last year.

Compass Minerals (CMP-N), a salt and potash producer, reported earnings of US$62.5 million for the quarter ending Dec. 31, compared to US$80.1 million for the same quarter last year. Potash sales were up 21% in the quarter, but still 31% below volumes for the same quarter last year.

In another sign of renewed interest in potash, mining giant BHP Billiton (BHP-N) agreed in late January to pay $341 million for Athabasca Potash (API-T). The deal works out to $8.35 cash per Athabasca share, which was trading at $1.60 last February. There is much speculation as to what Billiton’s next target will be as it tries to expand its interest in the sector.