Potash cuts outlook, shuts mines as China, India deals lag

Wed Oct 17, 2012 4:19pm EDT
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By Rod Nickel and Bhaswati Mukhopadhyay

(Reuters) - Potash Corp (POT.TO: Quote) (POT.N: Quote), the biggest global producer of the crop nutrient potash, cut its full-year earnings forecast for the second time in three months on Wednesday and said it would temporarily shut two mines, citing delays in signing new contracts with buyers in China and India.

Those two countries, along with the United States and Brazil, are the world's biggest importers of Canadian potash. They buy the crop nutrient through contracts that are generally renewed annually at prices that are used as a benchmark for spot sales.

"(Producers) set the potash price too high, the buyers can't afford it and there's demand destruction going on," said analyst Robert Winslow of National Bank Financial. "You can't have it both ways - high demand and high pricing - so they're paying the price for it."

Winslow has an "underperform" rating on shares of Potash Corp and holds a Street-low price target on the U.S.-listed stock of $37.

The weakening rupee and a cut in government fertilizer subsidies have made potash more expensive for Indian farmers, contributing to a stockpile of potash among North American producers.

China is seen as amply supplied with potash for now, leaving it in no hurry to sign contracts.

Potash Corp, Mosaic Co (MOS.N: Quote) and Agrium Inc (AGU.TO: Quote) sell potash offshore through marketing agency Canpotex. They have been waiting for new contracts with buyers in China and India since late summer.

The cut by Saskatoon, Saskatchewan-based Potash in its earnings forecast on Wednesday follows a cut it made in July, largely to reflect the impact of an impairment charge. On Wednesday, the company said its full-year earnings would be less than $2.80 per share. In July, it forecast $2.80 to $3.20 a share.   Continued...