June 26, 2009 / 2:06 AM / 8 years ago

UPDATE 3-Potash Corp cuts quarterly outlook on weaker sales

* Sees second-quarter earnings around 70 cents per share

* Outlook down from prior view of $1.10-$1.50 per share

* Shares fall 7.8 percent in post-market trade (Adds background, byline; In U.S. dollars unless noted)

By Euan Rocha

TORONTO, June 25 (Reuters) - Potash Corp of Saskatchewan Inc (POT.TO) POT.N, the world’s biggest fertilizer producer, slashed its second-quarter earnings forecast on Thursday, due to substantially lower than expected potash sales volumes, and shares fell 7.8 percent in after-hours trading.

“The change (in outlook) reflects substantially lower than forecasted potash sales volumes due to deferral of purchases by customers around the world and lower realized prices for phosphate fertilizers,” the company said in a brief statement, issued after the close of markets.

The price of potash -- a key crop nutrient -- has remained stubbornly high even as demand has collapsed, as a small group of companies, which account for roughly 75 percent of global potash supply, have drastically cut production in a bid to maintain pricing.

But, farmers who have been stung by the credit crunch and lower grain prices have opted to defer potash application in the hope that prices will decline. Potash helps enhance water retention in plants, increases crop yields and builds a plants’ disease resistance.

Roughly 40 percent of global potash production capacity has been idled since the second-half of 2008, but despite tight supply-side management, North American potash inventories have risen steadily in recent months to about 3.9 million tonnes, which is 99 percent higher than the five-year average.

Potash Corp now expects second-quarter earnings of 70 cents a share, down from the $1.10 to $1.50 per share it had earlier forecast.

The company said any necessary revisions to its annual guidance will be addressed in its second-quarter news release, which is expected on July 23.

Potash Corp shares in the United States fell over $7 to $86.20 in trade after the closing bell on Thursday.

PRICING WEAKENING

Last week, Potash Corp said it would cut 2009 potash production by an additional 800,000 tonnes, bringing cuts this calendar year to 4.7 million tonnes and total curtailments to 5.5 million tonnes since August 2008.

But, the first concrete indication that producers are beginning to cave on potash pricing came last Wednesday, when Germany’s K+S SDFG.DE said that high potash prices were “unsustainable” given current market conditions. K+S cut both its pricing and production at the time.

The move by K+S is likely to force Russian and Canadian potash export consortiums to concede a price cut in the ongoing negotiations with Chinese and Indian importers, analysts have said.

China is the world’s largest potash buyer and it typically negotiates annual contracts with Belarussian Potash Co (BPC) and Canpotex, at a substantial discount to spot market prices.

BPC is a 50-50 joint venture between Russia’s Uralkali (URKA.MM) and Belaruskali, while Canpotex is a partnership between Potash Corp, Mosaic Co (MOS.N) and Agrium Inc (AGU.TO). These five companies along with K+S and Russia’s Silvinit SILV.RTS account for about 75 percent of global potash supply.

Farmers are awaiting the signing of the Chinese contract, as any decline in contract pricing will have a roll-over effect on spot market prices. A contract with Chinese and Indian importers is expected before the end of the second quarter.

Mosaic shares fell 5.8 percent and Agrium shares fell 4.6 percent in after-hours trading. ($1=$1.16 Canadian) (Reporting by Euan Rocha in Toronto and Scott Haggett in Calgary; editing by Rob Wilson and Marguerita Choy)

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