June 21, 2016 / 8:52 PM / a year ago

Price, demand to guide K&S potash output from Canada: CFO

K+S Potash Canada partnered with Canadian Pacific (CP) to build a rail line for Potash that is bound for port and will be transported from the Legacy Project mine site near Bethune, Saskatchewan, Canada, in this May 16, 2016 handout photo. Greg Huszar Photography via K+S Potash Canada/Handout via Reuters

BETHUNE, Saskatchewan (Reuters) - German fertilizer and salt producer K&S AG (SDFGn.DE) will adjust potash production from its new Canadian mine according to price and demand, and will not necessarily maximize output during the industry's worst slump in nearly a decade, Chief Financial Officer Burkhard Lohr said on Tuesday.

The fifth-largest global potash producer, finishing construction of its C$4.1 billion Legacy mine near Bethune, Saskatchewan, will provide competition for Canada's three existing producers, Potash Corp of Saskatchewan (POT.TO), Mosaic Co (MOS.N) and Agrium Inc (AGU.TO).

A disciplined supply strategy by K&S would mirror one practised for years by those three, which co-ordinate offshore potash sales through Canpotex Ltd, aimed at supporting prices.

"If we have the full capacity in place, that does not necessarily mean that we fully utilize the capacity," Lohr said in an interview at Legacy.

The company expects to produce about 1 million tonnes in 2017 as it ramps up to full capacity. By 2018, it should have capacity for 2 million tonnes annually.

"We have to see by '18 what the conditions are like and adjusting utilization rate is an option at least," Lohr said.

Legacy, built by Amec Foster Wheeler PLC (AMFW.L), will use solution mining, a less expensive alternative to conventional mining that treats underground minerals with hot water and brings them to the surface for processing.

Legacy will add to overbuilt global production capacity, but offers the high-cost producer cheaper supplies to replace tonnes mined at some older German facilities.

"This is the future of the company, here in Canada," Lohr said.

K&S signed a marketing agreement last year with Koch Industries Inc [KCHIN.UL] for the sale of up to 500,000 tonnes of Legacy's annual production in the United States. Another 600,000 tonnes will be sold annually for industrial use, leaving about 900,000 tonnes for offshore buyers in Asia and South America, Lohr said.

Canadian Pacific Railway Ltd (CP.TO) will move all Legacy's potash to the United States and a British Columbia port facility.

As its supplies grow, K&S may negotiate annual contracts with Chinese and Indian buyers, as larger producers do, Lohr said.

K&S is also interested in buying more production capacity of specialty fertilizers that can command premiums, he said, including sulfate of potash and magnesium sulfate. He did not specify which assets the company was interested in purchasing.

Saskatchewan said last week it may halt a review of its potash royalty formula.. While that provides some certainty for K&S, the company was hoping for changes to eliminate advantages for older producers, Lohr said.

Reporting by Rod Nickel at Bethune, Saskatchewan; Editing by David Gregorio

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