A 53.5 percent drop in company potash volumes during the first quarter (GM May 11, p. 10) was due in part to emotional demand destruction, as well as non-traditional distributors, according to Intrepid Potash Inc. executives in their earnings call May 8.
“This year, at today’s potash prices, today’s corn prices, he (the farmer) can achieve a two and a half to three times return on his potash investment,” said Robert Jornayvaz, Intrepid chairman and CEO. “So what we’re seeing is what I’ve referred to before as emotional demand destruction, not economic demand destruction. We really try to differentiate between those two.”
Jornayvaz said the company has talked to a lot of farmers and is hearing a lot more emotional frustration at the price of potash than good economics. He said farmers are not being rational.
As for inventory levels, Jornayvaz said Intrepid is seeing high inventories concentrated on the upper river, “where we have some non-traditional potash players in the market?Ǫthat have some holdover tons.” He added that inventories are very, very low in the Pacific Northwest, and that there are low levels on the lower river. “What we’re seeing is some of those non-traditional potash distributors with tons on the upper river, are impacting the rest of the market around the U.S.” He also noted very disparate pricing throughout the U.S.
“The destocking process just needs to happen,” said R.L. Moore, senior vice president of marketing and sales, “so that dealers and non-traditional potash distributors sell through their inventory, at which point Intrepid as a producer can get back to selling product in a more rational historical volume at true market prices.” He estimated that there are between 650-700,000 st of potash in inventory up and down the river, and that doesn’t include product in producer warehouses. Moore said inventories are decreasing. He said May 8 that the company had seen about a 23 percent drop in inventories in the recent two-week period from where they were in the middle of April.
Asked about river potash barges selling below $600/st, Jornayvaz said Intrepid is not going to compete with these non-traditional distributors at the prices right now in a downward spiral market. He said it was important to look at the math. “If you look at the tonnages that were sold into the U.S. by the various potash producers in the first quarter, you look at the inventory that is in the system…and you begin to see that any demand return to more normal profiles, what’s out there is going to get used up very, very quickly.”
Jornayvaz also said Intrepid is seeing product come off the river for re-export to the Caribbean and Brazil.
Moore said that industrial demand for standard product remains weak, and that it is highly affected by the oil and gas rig count. “Given the ongoing weakness in oil and gas prices, the likelihood of a meaningful recovery in 2009 for the industrial market remains remote.” Industrial potash sales were put at 22 percent in the first quarter 2009, versus 29 percent for the year-ago quarter.
On the positive side, Jornayvaz said that during the first quarter Intrepid realized the best net sales price per ton of potash amongst the North American producers.
The company is projecting annual potash production to be below 600,000 st in 2009. It was 836,000 st in 2008.
Jornayvaz was hesitant to give a prediction on how low U.S. potash consumption would be in the current fertilizer year, but did say “we’re looking at very, very low numbers,” and that they would be “significantly lower than it’s ever been historically.” Still, the company reiterated in its earnings release that the country has a 25 year average of 10 million st/y of potash consumption, and that consumption would rebound.