PotashCorp’s profits rise on greater potash demand

Potash Corp. of Saskatchewan (POT-T, POT-N) says renewed potash demand has lifted its first-quarter profits to $556 million, or 63¢ per share, up 13% from the same period last year.

“As we anticipated, 2013 is shaping up to be a strong year for fertilizer demand, as needs to improve soil fertility and economic opportunity for farmers converge. These factors are favourable for our business, especially in potash,” Bill Doyle, the company’s CEO, said on a conference call.

He notes that potash shipments to all major markets have improved during the first three months of the year, with sales volumes increasing to 2.2 million tonnes, surpassing the 1.2 million tonnes sold a year ago.

North American sales nearly doubled to 800,000 tonnes, while offshore sales rose 69% to 1.4 million tonnes, as China resumed seaborne deliveries and demand picked up in key markets — notably in Brazil — with Indian customers slowly returning to the market.

The better sales volumes helped offset the lower realized potash prices, which decreased 17% to $363 per tonne to produce a potash gross margin of $504 million, ­compared to $327 million a year earlier.

Improved demand also pushed up quarterly production by 25% to 2 million tonnes.

For nitrogen, Potash Corp. reported prices rose 12% to $429 per tonne, as higher ammonia prices offset weaker urea prices. Sales volumes jumped nearly 8% to 1.4 million tonnes, which helped boost the gross margin to $271 million, up $52 million.

For phosphate, the miner says that lower prices dragged down the gross margin to $92 million from $152 million a year ago. During this time the average phosphate price fell 10% to $549 per tonne, while sales volumes for the quarter stayed flat at 900,000 tonnes.

But the recovering potash demand and higher nitrogen contributions drove Potash Corp.’s total gross margin up 24% from the year earlier to $900 million.

The Saskatoon-based producer forecasts potash gross margins of $1.9 billion to $2.4 billion this year, from potash shipments of 8.5 million to 9.2 million tonnes.

Doyle says nitrogen sales could exceed 2012 levels, noting that declining prices for nitrogen-based products, especially urea, should slightly lower the previously estimated gross margin. “But we still anticipate record gross margin for our nitrogen business in 2013,” he adds.

The gross margin for phosphate should be similar to last year’s, with weak demand from India impacting the global market.

But this year, the company is guiding combined nitrogen and phosphate gross margins of $1.4 billion to $1.7 billion.
Potash Corp. is maintaining its 2013 earnings forecast of $2.75 to $3.25 per share, and anticipates second-quarter earnings of 70¢ to 85¢.

It is also dropping its intentions to take over Tel Aviv-based Israel Chemicals (ICL), where it owns a 13.8% stake, with the potential bid made public last October meeting resistance from some Israeli politicians.  

“There must be receptivity to foreign investment and certainty in the rules that govern such investment,” Potash Corp. said in a release, adding that “now is not the time to pursue this opportunity.”

CIBC World Markets analyst Jacob Bout says that “we view scrapping ICL as positive, as Potash Corp. can explore avenues to return cash to shareholders.”

Bout forecasts a long-term potash price of $450 per tonne, adding that “potash is the only nutrient trading well above the industry’s marginal [$250-per-tonne] production cost.”

He has reiterated his $45 target and “sector perform” rating on the stock.