Mosaic caution deepens cloud over nutrient sector

Shares in Mosaic dropped 5% after the fertilizer giant issued the sector's second results caution within 24 hours, highlighting the growing damage to producers from the strike by Chinese and Indian buyers.

The US-based group said that the refusal by China and India to settle new long-term potash import contracts, in a move aimed at securing lower prices, was sparking reluctance among other buyers co commit to purchases too.

"The delay in signing long-term supply contracts with China and India has resulted in weakening price expectations, leading other international buyers to delay purchases to avoid price risk," Mosaic said.

Prices negotiated with China and India, the top two importing countries, are seen as setting benchmarks for other buyers ratcheting up the importance of the deals to the producer cartels Canpotex, in North America, and BPC, in the former Soviet Union.

'Cautious sentiment is spilling over'

Mosaic cut to 1.3m-1.4m tonnes, from 1.6m-1.9m tonnes, its estimate for potash sales in the September-to-November quarter, a downgrade which "reflects lower near-term demand in other international countries as well" as from China and India.

"We are seeing lower than expected shipments to the export market, in spite of very strong demand in North America for the fall application season," Jim Prokopanko, the group's chief executive, said.

And the group cautioned over a spread in negative sentiment too to the phosphate market, of which Mosaic is the market leader.

"International distributors' cautious sentiment with respect to potash is spilling over as buyers are avoiding phosphate price risk, and delaying purchases in spite of low reported producer inventories," Mosaic said.

The group cut to 2.9m-3.1m tonnes, from 3.0m-3.4m tonnes, its forecast for phosphate sales during the current quarter.

'Records in 2013'

The statement reflects the latest in a series of cautions by fertilizer groups, coming hours after German potash company K+S lowered its 2012 profits guidance, and following earnings from Canada's Agrium and PotashCorp that missed Wall Street expectations.

Mosaic offered some positive news to investors, saying that prices for phosphate and potash looked set to come in at the top end of the range of $535-550 a tonne, and $435-450 a tonne, guided to in the current quarter.

And Mr Prokopanko said that elevated crop prices, and strong farm profits, "are expected to drive record global phosphate and potash shipments in calendar 2013".

Investor reaction

However, Mosaic shares fell 4.7% to $48.35 in early deals, before recovering some ground to close at $49.10 in lunchtime trading.

The shares have already lost approaching 20% from September highs, hurt by a retreat in grain and oilseed prices besides the dent to prospects from China and India's so-called "potash holiday".

Analysts at Canaccord Genuity cut to "hold" from "buy" their rating on Mosaic shares, on which they cut their price target to $55 from $65.

The broker also cut its rating on PotashCorp shares to hold" from "buy", dropping the price target for the stock to $43 from $48.

At AltaCorp, John Chu cut hits estimate for Mosaic's quarterly earnings per share for the current quarter to $0.53 from $0.61, adding that the group's revised guidance was "negative from the potash sector", including PotashCorp, "given that the two companies track fairly closely in terms of sales volumes and realised prices".

PotashCorp shares ended 2.7% down at $37.68 in New York.

China, India potash deal hiccups trip up K+S
Agrium shares drop on profits hit from US drought
PotashCorp cuts profit hopes, blaming deal delays
Drought, hurricanes deepen drop in Mosaic profits
Agricultural Commodities
Agricultural Markets
Agricultural Companies
Agricultural Events