Mosaic said that it continued to forecast “robust global fertilizer demand” even as it extended indefinitely a shutdown at a Canadian potash mine which, alongside phosphate writedowns, will mean the company swallowing a $1bn charge.
The group revealed that its Colonsay potash mine in Saskatchewan, which it shuttered in August thanks to disappointing demand, will now be “idled for the foreseeable future.
The mine - which has an annual production capacity of more than 2m tonnes, but had been operating at 1.5m tonnes - will now “be placed in care and maintenance mode, employing minimal staff,” said Mosaic.
It added that this strategy would allow for “resumption of operations when needed to meet customers’ needs”.
‘Continued weak demand’
The idling has been forced by “continued weak demand in North America”, which Mosaic chief executive Joc O’Rourke said had “left Mosaic’s potash business with excess inventory and production capacity”.
“The decision… allows us to optimise our Canadian production assets and improve our cost position in a competitive market,” with the group raising output at its lower-cost Esterhazy K3 mine, also in Saskatchewan.
The group revealed that the move would mean a $530m pre-tax charge, primarily associated with writing-off the value of a 2013 expansion project at the mine, although with some $15m-20m related to staff severance pay-offs.
Mosaic unveiled too a separate charge of “up to” $590m against the value of its phosphate assets, thanks to weakness in that market too.
“These same market conditions that impacted potash, primarily a third consecutive weak application season in North America, also impacted phosphates,” the group said, noting that its average realised phosphate price “continued to decline in the fourth quarter of 2019”.
‘Strong business conditions’
Nonetheless, Mr O’Rourke was upbeat on nutrient market prospects, saying that “we continue to expect robust global fertilizer demand and strong business conditions”.
Mosaic has blamed the market downturns on one-off factors, such as the US wetness which hampered spring applications, and autumn fieldwork too in preparation for winter crops.
US winter wheat sowings for the 2020 harvest were the lowest since 1909, while rains hampered plantings in parts of the European Union too.
The group in November forecast global potash shipments rising to 66.0m-68.9m tonnes in 2020, from 65.2m tonnes last year, with gains expected in most major markets, with the potential exception of China.
For phosphates, 2020 shipments were expected at 68.3m-71.0m tonnes, compared with 68.6m tonnes in 2019, with growth in the likes of Europe and North America offset to some degree by weakness in China and India.
The Colonsay announcement is the latest in a series of capacity shutdowns by potash producers.
Russia’s Uralkali in September unveiled plans to cut its potash output by 350,000-500,000 tonnes in the second half of last year, “largely as a result of current market situation and scheduled maintenance activities”.
Canada-based Nutrien revealed eight-week shutdowns at its Allan, Lanigan and Vanscoy potash mines during the last three months of 2019, “in response to a short-term slowdown in global potash markets”, a move expected to cut output by potentially 700,000 tonnes.
Scotiabank on Wednesday trimmed by $2, to $24, its price forecast for Mosaic shares, which closed the last session at $19.35.