Potash prices look lower for longer as competition overheats

Thu Jan 26, 2017 11:11am EST
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By Rod Nickel and John Benny

(Reuters) - The deepest slump in a decade for the oversupplied potash fertilizer market may abate only slightly in 2017, major producers say, and could take years to correct due to the imminent startup of new mines.

Canada's Potash Corp of Saskatchewan Inc (POT.TO: Quote) (POT.N: Quote), the world's biggest fertilizer producer, forecast a less profitable year on Thursday than analysts expected, and reported a surprisingly big drop in quarterly profit.

Potash prices are hovering around their lowest levels since 2007, amid bloated capacity and weakening farm incomes, spurring consolidation. Adding to miners' problems, several new low-cost mines are scheduled to begin production in coming years.

Oversupplied conditions may improve between 2020 and 2022, said Agrium Chief Executive Officer Chuck Magro, speaking at an investor conference in British Columbia on Wednesday.

Agrium Inc (AGU.TO: Quote) and Potash Corp plan to merge by mid-2017 to cut costs and better compete.

"The markets are very, very competitive right now and (the merger) is the only way that we can compete," Magro said.

Germany's K+S AG (SDFGn.DE: Quote) will ramp up production at its new Western Canada mine this year, while EuroChem begins mining potash in Russia next year.

"We remain concerned these so-called 'trough' earnings levels could linger for years," said BMO analyst Joel Jackson, in a note.   Continued...

Potash Corp's head office in Saskatoon is pictured on November 3, 1010. REUTERS/David Stobbe