PotashCorp reported a 46 percent increase in net income for the first quarter ending March 31, 2010, to $449.2 million ($1.47 per diluted share) on sales of $1.7 billion, versus the year-ago $307.4 million ($1.01 per diluted share) on sales of $922.5 million. It was the second-highest first quarter in company history.
PotashCorp said buyers returned to the market and purchased more of all three major nutrients, particularly potash.
“The transition from the challenging environment of 2009 was reflected in our first-quarter earnings,” said PotashCorp President and CEO Bill Doyle. “With soil nutrient shortfalls created by nearly 18 months of substantially reduced fertilizer consumption, farmers began to resume the more scientifically sound fertilization practices essential to sustain crop production. This was an important step in preparing for the longer-term challenge of feeding a growing global population.”
Potash sales volumes soared compared to the year-ago period, to 2.46 million mt versus only 474,000 mt for the year-ago quarter. First-quarter potash gross margins were $516.4 million on sales of $892.2 million, versus the year-ago $166.6 million on sales of $269.2 million.
The average potash price, however, sank to $321.31/mt from the year-ago $534.35/mt. Tonnage to North America was 1.27 million mt at an average price of $355.19/mt, versus the year-ago 133,000 mt and $639.91/mt. Offshore sales were 1.2 million mt ($285.48/mt), versus the year-ago 341,000 mt ($493.03/mt).
First-quarter nitrogen gross margins were $132.6 million on sales of $420.1 million, up from the year-ago $54.2 million and $323.4 million. Sales volumes were 1.32 million mt with an average price of $277.60/mt, versus the year-ago 1.26 million mt and $226.69/mt.
First-quarter phosphate gross margins were $66.1 million on sales of $401.3 million, up from the year-ago $7.3 million on sales of $329.9 million. Volumes sold were 860,000 mt at $418.67/mt, versus the year-ago 596,000 mt at $503.25/mt.
PotashCorp expects 2010 net income of $4.50-$5.25 per diluted share, including $1.00-$1.30 in the second quarter.
“They want to end the season empty,” Dave Delaney, PCS Sales president, told analysts. “That’s been the motto of every one of our customers – we’ve had a terrific season, offtake has been great. All of our customers have made money, the farmer’s making money, but at the end of the day, everyone wants to end the season empty and that’s the psychology. So, we’re expecting a very strong second half.” He said thus far, the company has received $15 of its stated $30 March potash price increase.
“Coming out of the spring season empty is going to lead to a strong summer fill in the U.S. at the same time that we’re going to see strong demand from Brazil in the June to September time period,” added Doyle.
To analysts, Doyle expressed dismay that some observers have not fully appreciated that a recovery is underway, which has created a drag on fertilizer price stocks in recent weeks. He said that while lackluster crop prices have garnered significant attention, they are well above historical averages. “At current corn prices, a North American farmer is spending less than 4 percent of projected revenue on potash and is capturing historically high returns over input costs.” He also pointed to the recent news that China, which has recently been a corn exporter, has once again begun importing corn, saying this has spectacular consequences for the corn market and shows that China’s corn production last year was overestimated.
Doyle continued his resolve to ink quarterly contracts with major potash buyers in the future, however, saying that long-term contracts for DAP, such as those recently concluded with India, were correct. He said DAP is a different commodity and it was prudent to establish a floor under those prices, particularly since new production will be coming online within the next three years.
Doyle continues to discount the odds of a new greenfield potash mine despite the recent rumblings by mining giants Vale and BHP Billiton to do so. He said a new mine would only be feasible if potash prices were $600/mt. “The difference between drilling a couple of holes for a couple million dollars and building one of these projects is enormous,” said Doyle. He said if you presented one of these deals to a board of directors they would look at you like you had a hole in your head. “I would like to see a little more scrutiny and a little bit more discernment when people look and just take all these projects for granted. And again the proof is in the pudding. None of them are underway. So, if it was such a hot spit deal, we’d be doing it.”