Canpotex nixes plan for potash terminal in Prince Rupert

VANCOUVER — Canpotex, an exclusive offshore marketing company for potash mined in Saskatchewan by Agrium (TSX: AGU; AGY: NYSE), Mosaic (NYSE: MOS) and Potash Corp. of Saskatchewan (TSX: POT; NYSE: POT), has abandoned plans to build a $775 million potash export terminal in Prince Rupert, B.C. after nearly a decade of consideration.

Ken Seitz, president and CEO of Canpotex tells The Northern Miner that the company’s export terminals located in Vancouver, B.C., Saint John, N.B., and Portland, OR., provide enough terminal capacity to meet the potash trader’s needs.

“Over the years, all the work we’ve done at Prince Rupert has been in preparation to decide whether we should charge forward and build the facility, he says in an interview. “But when we weighed all of our options from a strategic, cost and commercial perspective, we concluded that the facility was not our preferred option.”

The Saskatoon-based organization first announced plans for a new bulk terminal on Prince Rupert’s Ridley Island in 2008, designed with a capacity to handle 13 million tonnes of potash per year.

Almost two years ago, the organization executed a lease agreement with the Prince Rupert Port Authority to equip the proposed terminal with an 180,000-tonne potash storage building, along with a conveyor and dust-collection systems.

Work to date has cost Canpotex $50 million, including $15 million towards the port’s $90 million road, rail and utility corridor project, which was completed in May last year.

The Canadian National Railway provided $30 million towards the project, in part with the B.C. and federal governments and the Prince Rupert Port Authority, who contributed $15 million apiece.

“We had a very positive experience navigating the regulatory environment and had great working relationships with the First Nation groups and the Port Authority,” Seitz says.

Canpotex’s withdrawal from Prince Rupert followed just months after PotashCorp, under pressure from falling potash prices, announced plans to shutter its one-year-old Picadilly mine near Sussex, N.B.

Seitz says the closure freed up capacity at the organization’s N.B. export terminal, giving Canpotex an “east-coast option for shipping potash.”

“We do not want our decision at Prince Rupert to be interpreted as a commentary on the health of the potash business because that’s certainly not the case,” he says. “There’s a lot of short-term things at play that are driving down prices, but when we look beyond the short-term, the outlook is really good.”

The crop nutrient began its swoon four years ago as weak crop prices and currency declines pinched demand. Prices also suffered following the breakup in 2013 of a Russian-Belarussian marketing cartel that previously helped limit supply.

However, in recent news, commentary from Belarus’ president Alexander Lukashenko has indicated that giant potash miners Belaruskali and Uralkali might resume their “cooperative” sales efforts.

Lukashenko stated: “virtually every month new shareholders of Uralkali contact me to say that they want to cooperate. I tell them that I am ready to meet with them if they have proposals. Today they are ready to cooperate with us. We are not against it. But we will work on our terms. Let’s resume work. Let’s agree on the volumes of production. To put it plainly, we will divide markets and will not compete with each other. It will bring good dividends.”

In a June research note, analysts at Raymond James said that the president’s comments offer “the first tangible signal that reconciliation, and return to supply management, may be possible.”

Seitz says a key factor burdening potash prices over the past 6 months is that China, the world’s largest consumer of potash fertilizer, still hasn’t signed an annual benchmark supply contract with foreign producers.

“The way this business works, every year potash suppliers start negotiating with the Chinese for their annual requirements. The longer it takes to negotiate, the more uncertainty and instability it creates in the potash market,” he says. “Several other markets look to the Chinese settlement to create a floor for potash prices for the year but that hasn’t come yet.”

Separately, the Raymond James report states that Belaruskali is close to inking an export contract for 700,000 tonnes of potash with an Indian buyer — an event the analysts consider as “critical” in reestablishing normal fluidity and commercial terms in the global potash sector.

The analysts said the contract could land between US$220 to US$230 per tonne — a 32% drop compared to the contract price in 2015 — and may serve as a reference point for others that follow. They predict the Chinese contract may fall between US$205 to US$213 per tonne.

According to Canpotex’s market review in May, while 2015 was a “challenging” year for the sector, the global microenvironment has shown signs of improvement.

The organization predicts that global potash production could peak between 59 and 61 million tonnes this year, and grow at a long-term rate up to 3%, reaching 70 million tonnes of potash in 2020.

Operational capability is forecast to grow at a similar average rate over the next five years, supporting a relatively balanced market outlook.

“Everything we do at Canpotex has a 20-year outlook,” he says. “Growth in the demand for food is also growth in the demand for potash, so the long term picture of that shows it’s really favourable.”