3 disturbing trends revealed in potashcorp’s earnings report

3 Disturbing Trends Revealed in PotashCorp’s Earnings Report

Image source: Potash Corp.

Weak demand from international markets

The problem

Lower demand from offshore markets such as Latin America and Asia, largely because of currency fluctuations and weather disruptions.

Why it hurts PotashCorp

Data source: Fertecon, CRU, IFA, PotashCorp. Chart source: PotashCorp’s TFI World Fertilizer Conference report, September 2015

Asia and Latin America are the top fertilizer consumers in the world

PotashCorp is closing down its Penobsquis mine at New Brunswick ahead of schedule, and temporarily shutting down three mines in December to curtail Q4 potash production by 500,000 tonnes.

It’s an industry-wide trend, with Mosaic also planning to operate its potash plants at 70% capacity in Q4, compared to 91% operating rate in the year-ago period.

The impact

Falling nitrogen prices

The problem

Nitrogen prices are under pressure as global supply continues to rise, thanks largely to the lower cost of natural gas, a key input.

Why it hurts PotashCorp

Source: Company’s 2014 annual report

Nitrogen makes up a big chunk of the company’s profits

Source: Company presentation at the BAML Global Agriculture Conference, February 2015

The impact PotashCorp’s Q3 gross profit

declined 14% year over year on lower nitrogen prices.

The company now expects to earn $1 billion-$1.1 billion in combined nitrogen and phosphate gross profits this year, versus $1 billion-$1.2 billion guided earlier.

Source: PotashCorp’s Q3 earnings presentation

Macro headwinds hurting growth prospects

The problems

Lower crop prices have hurt farmers’ income -- a key driver of fertilizer consumption. Economic uncertainty in emerging markets and currency fluctuations have exacerbated the situation.

Key global challenges

Data source: IMF, Bloomberg. Chart source: PotashCorp’s TFI World Fertilizer Conference report, September 2015

The impactBoth PotashCorp and Mosaic lowered their 2015

outlook for potash sales volumes and gross profit, as neither company expects global potash shipments to hit 60 million tonnes this year as projected earlier.

PotashCorp now expects to earn only $1.55-$1.65 per share this year, compared to $1.75-$1.95 a share projected earlier. That suggests 9% decline from 2014, even at the higher end.

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