Softer K prices could be beneficial, says PotashCorp exec; company worries over long-term gas
A Potash Corp. of Saskatchewan Inc. executive last week added to some recent comments by other potash competitors that softer prices may be on the way for international customers. PotashCorp Executive Vice President and CFO Wayne Brownlee said last week that if India sees lower potash prices and crop yields, it may be “more fully engaged” next year. He said since Canpotex last did business with India during the first quarter of 2012 at $520/mt, that prices have drifted downward $50-$70/mt – which was what India had sought in earlier negotiations.
Brownlee put 2012 Indian potash consumption at 3 million mt, but said it could grow 1.5-2.5 million mt in 2013. He said it could even return to the record 6.5 million in 2014, noting that for the country to have the same N to K ratio as the U.S., it would need 10-12 million mt/y.
“…if you try to put this in perspective, a softening of prices that generates a much higher customer engagement on volume going forward for sustained growth, and at the same time, a bit of softening in price that discourages some new investing in the industry that will protect the next 5-year outlook in a much stronger way than it would, could end up being the most beneficial thing that happens.
“…we actually think we’re in a transition period point in time right now where this is really setting up the next five years, from a supply/demand perspective.” The company is hopeful the industry will return to the 1993-2007 growth rate of 3 percent, and improve upon it. He said the growth is going to be in the international market, and that is also where the volatility is.
Brownlee said he is not concerned by recent moves made by the Chinese and possibly other buyers to take a minority stake in Uralkali or Belaruskali, two major potash producers. He said he would be surprised to see them enter any deal that would change the way they market product. “Why would I give a 15 percent ownership in a company and destroy my business plan and diminish the value of the other 85 percent, it does not make any business sense to me.” Uralkali’s majority owner was recently involved in a convertible bond deal that could lead to China’s sovereign wealth fund gaining a stake in the company (GM Nov. 19, p. 10), while Belaruskali has floated the possibility of selling a minority stake. There was also speculation last week that BHP, which has been readying its Jansen potash project in Saskatchewan, might also take on a minority partner – one that could perhaps cover the $1 billion plus the company has already pumped into the project.
Also on the potash front, Brownlee said there are “lots of hurdles” for the company to acquire Israel Chemicals Ltd. (ICL) He said he would not speculate on those publically, but said the possibility of that transaction and what it could do for PotashCorp in a soft market and in a strong market is quite compelling. The first goal would be to get Israeli approval and then move on to international. He said PotashCorp and ICL markets are complementary and not overlapping for the most part, which would bode well for antitrust rulings. He noted that ICL puts about 6 million mt of potash into a normal market, or about an 11 percent market share.
Brownlee noted that the company’s capital expenditures are starting to decline as the company gets closer to putting in place its new potash brownfield capacity. Alternatives for the excess cash could include higher dividends, a stock buyback, and merger and acquisitions – ICL, for example.
Brownlee, who was speaking before the Citi Basic Materials Symposium, touted the company’s recent ammonia brownfield projects – 500,000 mt/y coming online at Geismar, La., Jan. 1 and 70,000 mt/y recently added at Augusta, Ga. – and said if it proceeds with a debottleneck at Lima, Ohio, it