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PotashCorp curtails profit hopes, citing nitrogen, phosphate setbacks

REUTERS/David Stobbe

PotashCorp curtailed its earnings hopes, despite further improvement in potash prices, as its phosphate division slipped further into the red, dragging results for the latest quarter below market forecasts.

The Canadian fertilizer giant – in what may be its latest results statement before merging with domestic rival Agrium – revised to $0.48-0.54 per share, from $0.45-65 per share, its forecast for its earnings for the full 2017.

The revision, which lowered the centre of the range of earnings expectations by $0.04 to $0.51 per share, left the company on track to fall short of the result of $0.64-0.65 per share that Wall Street has factored in.

And it reflected a cut to $140m-190m, from $150m-300m, in gross margin expected from the nitrogen and phosphate operations combined.

‘Markets to remain volatile’

In nitrogen, the group said it expected “markets to remain volatile” over the rest of 2017, leaving full-year gross margin “significantly weaker” than last year.

The comments followed a July-to-September quarter in which gross margin in nitrogen dropped 70% year on year to $21m, the weakest result for the segment in nearly nine years, reflecting a drop in average realised prices to a 14-year low of $168 a tonne.

PotashCorp flagged “lower realisations for ammonia”, values of which did not in the period enjoy the same revival as those of urea, which have been boosted by Chinese shutdowns, as highlighted by Yara last week.

However, ammonia prices have staged a more recent rally, adding 14.0% to $245 a tonne over the past month in the Tampa export market, on a CFR basis, according to broker Raymond James.

‘Challenging market fundamentals’

In phosphates, PotashCorp forecast that “challenging market fundamentals will continue to weigh” on prices, after a July-to-September period in which the group’s sales values averaged $365 a tonne, down $20 a tonne year on year, and the weakest in eight years.

The group flagged “lower prices for feed and industrial products”.

PotashCorp noted up a $45m loss in phosphates, in gross margin terms, compared with a profit of $15m a year before, and representing the worst result on data going back to 1998.

‘Robust demand to continue’

The weak performances in nitrogen and phosphates contrasted with a potash result which, at $254m, was more than double that the year before, buoyed by a recovery in average realised prices to $179 a tonne, the highest in nearly two years.

Sales volumes, at 2.9m tonnes, set a record high, reflecting in particular a rise in exports.

“With strong customer engagement in all key markets, potash fundamentals continued to improve,” said Jochen Tilk, the PotashCorp chief executive.

The group stuck by expectations of world industry potash shipments hitting 62m-65m tonnes this year, foreseeing record high demand.

And, looking into next year, the company forecast “robust demand to continue into 2018”.

The group reported earnings of $0.06 per share for the July-to-September period, below the $0.09 expected by investors, and the $0.10 per share reported a year earlier.