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SQM sees drop in potash prices, as Canada's stocks mount

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Mining company SQM warned of an extension in a slide potash prices, as data showed North American production of the nutrient reaching its highest since at least the 1990s.

"The potassium chloride market has become quite competitive in recent months as some larger competitors focus on increasing their volumes," Chilean-based SQM said.

"We have seen oversupply in the market, and for this reason we expect average prices to slightly decrease during 2015."

The "trend" of falling prices was one "we have seen during the first part of the second quarter", the group added.

Oversupply

The announcement came as data from PotashCorp, a Canadian potash giant, pegged North American potash production for the January-to-March quarter at 5.38m tonnes - the largest quarterly output since at least 1999.

The growth in output followed the opening by Agrium of its expanded Vanscoy mine in Saskatchewan, which is expected to keep raising output into 2017.

Saskatchewan, the centre of the North American potash industry, is the focus of other investment projects too, including by PotashCorp at its Rocanville site and Mosaic at Esterhazy K3, while Germany's K+S is developing the first mine on a greenfield site in the province in nearly 40 years.

North American potash exports made a strong start to 2015 too, rising by 12.8% year on year during the January-to-March period to hit 2.82m tonnes, at a time when output from Russian giant Uralkali has been curtailed by a mine accident.

Nonetheless, backed by the strong output, potash inventories extended a rebuild from a six-year low of 1.42m tonnes reached in August last year, and ended March at 2.54m tonnes.

Sales volumes to fall

SQM, in which PotashCorp is a minority shareholder, saw first quarter revenues from the sale of potassium chloride and potassium sulphate at $87.9m, down 42.1% from sales of $151.9m in the first quarter of 2014.

Sales were hit primarily by delays in shipments, which reduced volumes by 48% compared with the same time last year.

"We expect to recuperate some sales volumes during the remainder of 2015, and we expect to see much higher sales volumes during the second quarter of 2015," said SQM.

"However, it is likely that sales volumes for this year will be lower what we saw in 2014.

Revenues, earnings fall

SQM reported earnings for the first three months of 2015 down 11.5% to $71.7m, from $81.0m in the same period of 2014.

Revenues were down 27.4% to $387.5m compared to $534.1m reported for the first three months of 2014.

SQM has already seen the resignation of Patricio Contesse as chief executive over a party financing scandal. Controlling shareholder Julio Ponce, who is the son-in-law of late dictator General Pinochet, stood down from his position as chairman.

SQM shareholders appointed a new board of directors on April 24, which included corporate governance specialists appointed by PotashCorp.

SQM's new chief executive, Patricio de Solminihac, said: "As you know, the company has been responding to a number of inquiries from Chilean authorities including the public prosecutor and the Chilean Internal Revenue Service.

"We are taking all of these issues seriously, and will continue to work diligently with our tax and legal advisors to collaborate with the competent authorities."

SQM shares in New York were down 4.53% at $20.3350 dollars on the news, as of time of writing.

By William Clarke

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