Potash miners face over-supply threat of their own making – by Rod Nickel (Reuters U.S. – September 4, 2014)


WINNIPEG Manitoba – (Reuters) – A pickup in fertilizer demand has brightened the outlook for North American potash companies who suffered through plunging prices and profits after a European trading consortium collapsed in 2013.

But any celebration among investors may be premature.

A surplus of potash mining capacity is set to grow even larger in coming years, weighing down the global industry while favoring low-cost eastern European producers over North American miners, who are sticking to a marketing strategy that risks falling behind the times.

And the times are changing. Belarusian Potash Company (BPC), the counterpart to North America’s potash trading consortium Canpotex Ltd, collapsed a year ago, with one partner looking to increase volumes rather than limit output and hope for higher prices.

The first new mines in Western Canada in four decades are also under construction and would be fierce rivals to Canpotex partners Potash Corp of Saskatchewan, Mosaic Co and Agrium Inc.

This year, global capacity will hit 82 million tonnes, but demand will fall well short, even at a record-high level of 57 million tonnes, according to London-based commodity research firm CRU. That gap is set to widen slightly by 2020, when capacity looks to reach 99 million tonnes, far more than is needed to meet demand of only 73 million.

CRU’s demand forecast is based on an assumption that demand will grow faster than it has in the last seven years. If it does not, the supply-demand gulf will grow even wider.

“I’m more worried still about the industry,” said Philippe Capelle, vice-president of equities for Standard Life Investments, which holds shares in Potash Corp and Agrium and likes the companies.

“You’ve had a bounce-back in volumes this year in potash. Do you get a bounce-back next year? Maybe not and then what happens? You still have plenty of supply, so why would the pricing go up?”

Potash Corp shares have risen 28 percent since late July 2013 through Tuesday to trade back around their level before BPC’s collapse that month. But the Toronto-listed stock’s price around C$38 is less than half its record-high value reached during the 2008 commodities boom.

Canpotex is sold out of potash for the current third quarter. But much of that recovery is due to pent-up demand caused by North American railway problems that temporarily stifled the flow of potash.

“You can only restock the cupboard once,” cautioned Scotiabank analyst Ben Isaacson, in a July 24 note.


Potash was an investor darling six years ago on the logic that global population and income growth would drive up grain production.

For the rest of this article, click here: http://www.reuters.com/article/2014/09/04/us-potash-outlook-analysis-idUSKBN0GZ1B820140904