PotashCorp cuts profit hopes, on China setback

PotashCorp marred an upbeat long-term picture for fertilizer demand, supported by an "extended period" of elevated crop prices, with a succession of near-term setbacks, from production hiccups to investment writedowns.

The fertilizer giant forecast "rising demand for our products, specifically potash, in the years ahead", as farmers, lured by high crop values, strive to rebuild world crop supplies sapped by a range of weather setbacks.

"The farm production shortfalls expected this year will support an extended period of crop prices at levels that encourage high-yield agriculture, as these deficits are never made up in a single growing season," Canada-based PotashCorp said.

"Difficult weather conditions in certain parts of the world are proving that nature doesn't provide a free lunch and appropriate steps must be taken to enhance productivity.

"Potash, specifically, is essential for plant health during periods of crop stress."

Indian setback

However, while forecasting record North American shipments in the second half of the year, the group cautioned that, thanks to weaker Indian demand, world potash demand for 2012 as a whole was likely to come at "at the lower" end of the range of 53m-56m tonnes it has guided to.

Indian purchases of fertilizer have been dented both by a weak rupee and a less generous nutrient subsidy regime.

And PotashCorp trimmed to $2.6bn-2.9bn its forecast for its gross margin in potash over 2012, noting that "significant scheduled maintenance" at its mines over the summer would raise the cost per tonne of nutrient produced.

With estimate for capital spending in 2012 nudged higher too, by $100m to $2.2bn, the group forecast earnings per share of $0.70-0.90 a share in the July-to-September quarter.

Analysts have factored in earnings of $0.94 a share.

Chinese investment loss

And this as PotashCorp revealed that its earnings for the April-to-June period had fallen short of forecasts of $1.02 a share too - tumbling to $0.60 a share, from $0.96 a share the year before.

The decline reflected writedowns of $29m at the group's phosphate segment, and of $341m in the value of its investment in Sinofert, the Chinese fertilizer group.

"This was incurred due to the significant amount by which fair value was below our cost," said PotashCorp, which paid $579m for its SInofert stake.

The group cut to $2.80-3.20 a share, from $3.20-3.60 a share, its forecast for full year earnings to reflect the writedowns.

Investors have been forecasting a $3.46-a-share result, according to a ThomsonReuters poll.

PotashCorp shares recovered early losses to close 1.1% higher at $44.99 in New York.

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