Delays by potash groups in sealing fresh export contracts to
China and India have prompted PotashCorp, the world's largest producer by
capacity, to cut its profits guidance for the second time in three months.
The Canadian based group said that its earnings per share
for 2012 would "fall below the low end" of the range of $2.80-3.20 that it had
The downgrade, which factored in earnings for the
July-to-September quarter coming in at the "low-end" of the $0.70-0.90 per
share the group had guided to, reflected "lower-than-forecasted potash sales
This was down to "delays in new contracts with buyers in
China and India", the top importing countries, whose orders have a large impact
on available supplies of the nutrient.
Wednesday's revision followed the group's downgrade in July to its earnings hopes from the initial $3.20-3.60 per share, with the cut then blamed
on weakened hopes for world potash demand, besides a $341m writedown in the
value of the group's investment in Sinofert, the Chinese fertilizer group.
PotashCorp two days ago revealed a further gentle decline in
the value of potash prices in Vancouver, depressed by inventories held by North
American producers which, while falling 72,873 tonnes last month to their
lowest since November, remain 39% above average levels.
The relative abundance in supplies comes despite efforts by producers
to reduce output, with PotashCorp shutting its Lanigan mine in Saskatchewan
from September 15 to October 13 in the latest of a series of temporary capacity
However, China's appetite for imports has been stemmed in
part by elevated levels of domestic production, while the weakness of the rupee
has hit Indian demand for a product which is traded in US dollars.
The Indian Farmers Fertiliser Co-operative said last week
that India, which imports all its potash, was unlikely to agree new import contracts
until the end of key growing season late in 2012, when farmers will have a
better idea of their need for the nutrient.
And even then, lower prices were needed to boost demand for
farmers, meaning the imports need to be priced significantly less than the $490
per tonne of the last deal, which expired earlier this year, with Canpotex, the
North American potash marketing consortium of which PotashCorp is a member.
PotashCorp's revised full-year guidance was well below
market expectations of a $3.37-a-share results, and prompted Topeka Capital to lower to $37.50, from $39.00, its target price for shares in the fertilizer giant.
At AltaCorp Capital, managing director John Chu said: "We continue to exhiit our cautious view on the sector, as near-term fundamentals appear murky at best.
"The latest [North America potash] inventory data revealed little demand momentum, while a contract with China continues to be pushed back," he said, adding that "meaningful" purchases by India did not look likely until at least late 2012.
"We may cut our fourth-quarter estimates if demand continues to be weak," Mr Chu said, restating a target of $55 on PotashCorp shares.
'Continued deterioration in demand'
However, the shares recovered early losses to close 0.9% higher at $41.98 in New York.
CIBC Markets on Tuesday cut its price targets for PotashCorp
shares on 12- and 18-month horizons to $46, from $54, citing weakened prospects
for potash demand, and values.
"The continued deterioration in potash demand has resulted
in pricing pressure in key markets such as China and Brazil," CIBC analyst
Jacob Bout said, cutting his long-term price forecast by $100 to $450 per tonne.