Photo by: Bloomberg
VANCOUVER (miningweekly.com) – Canadian potash majors Potash Corp of Saskatchewan and Agrium Inc have reported higher sales volumes for the crop nutrient for the second quarter ended June 30, pushing potash prices higher, despite a persisting market glut.
Calgary, Alberta-based Agrium has reported adjusted net earnings – which removes special items during the quarter from the balance sheet – of $566-million, or $4.09 a share, beating analyst forecasts calling for earnings of $4.03 a share, based on expected revenues totalling $6.36-billion.
Net earnings for the period were 1% lower year-on-year at $559-million, as weaker nitrogen and phosphate benchmark prices were only partially offset by higher retail earnings, strong potash results and lower fixed costs across the company’s wholesale business.
Revenues in the period declined 1% over the comparable period of 2016 to $6.32-billion.
Agrium said it expects to achieve annual diluted earnings per share of $4.75 to $5.25 in 2017, compared to its previous estimate of $4.75 to $5.75 a share. Agrium has lowered the upper end of its guidance range on the back of an expected weak nitrogen pricing environment and the challenging weather conditions this spring, which impacted on North American retail crop nutrient margins and sales volumes.
The company has also narrowed the range width covering about $100-million of earnings before interest, taxes, depreciation and amortisation variability.
IMPROVING MARKET
According to Agrium, which is scheduled to close its merger with PotashCorp later this quarter, the global potash supply and demand balance was tight throughout the first half of 2017. Despite high producer shipments this year, Agrium believes there has been little build-up in downstream inventories, which is expected to support the continued strong demand for the crop nutrient in the second half of the year.
Potash gross profit almost tripled in the quarter compared with the same period last year, owing to a combination of higher selling prices and higher production and sales volumes. Total potash sales were 714-million tonnes, at $210/t, which is higher than the 697-million tonnes sold in the comparable period of 2016, at $194/t.
Sales volumes were 2% higher in the current period, with international volumes up 31% on strong global demand. The strong demand from international markets in the quarter led to lower product availability for domestic markets, resulting in domestic volumes being 14% lower than the same period last year, the company said.
Average realised selling prices increased 8% over the past year, with realised North American prices up 16% on strong demand and tighter inventories.
Agrium’s cost of product sold per tonne was 13% lower than the same period last year, owing to higher production and sales volumes, reduced fixed costs on a per tonne basis, and a higher proportion of sales to Canpotex, which did not incur freight charges. Gross margins were up $39/t, almost three times higher than last year’s levels, while cash margins came in at $106/t in the period.
Year-on-year, potash imports increased by 15% in Brazil, 95% in India and 17% in China in the first half of 2017, adding 2.7-million tonnes of trade in total. In the US, offshore imports were more than double the same period last year. Agrium advises that there has been limited growth in global potash supply so far in 2017, outside of increased production by existing Saskatchewan producers. The additional supply in the second half of the year is expected to be relatively small, the company states.
Global phosphate prices have been under pressure in 2017, owing to increased availability in Morocco, China and Russia, which more than offset increased import demand in Brazil, the US and Pakistan. Likewise, capacity additions in Morocco and Saudi Arabia are expected to add to global supplies in the second half of the year.
Global nitrogen capacity additions, and lower-than-expected demand in China and India so far this year, have weighed on global nitrogen markets. However, nitrogen supplies have been impacted on by continued low operating rates in China. The year-on-year reduction in output in these two countries has more than offset increased production in the US and other countries this year, noted the company.
RISING DEMAND
Meanwhile, PotashCorp, the world's third-largest potash producer, also benefited from higher potash prices. The Saskatoon, Saskatchewan-based fertiliser producer's revenue rose 6.4% to $1.11-billion, beating the average analyst estimate of $1.09-billion.
PotashCorp's net earnings rose to $201-million, or $0.24 a share, from $121-million, or $0.14 a share, a year earlier.
On an adjusted basis, it earned $0.16 a share, missing analysts' average estimate by $0.02 a share.
The company said potash sales rose 11% to 2.4-million tonnes in the second quarter, and its average realised price for potash rose to $174/t, from $154/t a year earlier.
PotashCorp forecast global demand of 62-million to 65-million tonnes this year, up from an earlier forecast of 61-million to 64-million tonnes.
Its “merger of equals” with Agrium will see the creation of a new $36-billion entity, to be named Nutrien.