PotashCorp’s announcement this week of job cuts and production slowdowns at some of its Saskatchewan operations comes as the global fertilizer market is finally beginning to see an uptick in prices.
David Asbridge, an analyst with U.S.-based NPK Fertilizer Advisory Service, said he found PotashCorp’s layoff announcement at its Cory mine – coupled with plans for weeks of temporary shutdowns at its Lanigan and Allen mines – surprising.
“We’re beginning to see some strength in the potash market right now. We have seen it kick up here, wholesale prices have been going up somewhat,” he said.
Asbridge said it’s likely the company is trying to secure those modest price gains and protect against seasonal slowdowns typical for the industry at this time of year.
“They’re seeing that the cutbacks they’ve already made have yielded some positive results. So maybe they thought that they would cut back a little bit more, keep inventories from getting too built up over the winter,” he said.
Asbridge said Canada’s potash producers have been shouldering most of the load when it comes to reducing output. He said overall, North American potash companies are running at about 50 per cent capacity.
Contrast that with Belarus, whose main potash producer recently announced it was producing at 100 per cent capacity. Asbridge said Russian, European and Israeli firms are also all operating at higher levels.
“The Canadian producers are the ones that have really taken the big hit in terms of capacity utilization. They’ve shut more capacity down…. than all the rest of the world’s potash combined, actually,” Asbridge said, noting most of the Canadian shutdowns have been temporary, leaving plenty of capacity available for an eventual turnaround.
Asbridge said that fundamentally, potash is like any other commodity — meaning prices will come up as producers stop the expansions they undertook during the last boom.
“What happens is we build too much capacity like we’ve done over the last seven years,” he said.
“We’ve had fairly good fertilizer prices as well as crop prices, so they’ve built too much capacity. What we need to do now is let the cycle kind of work its way through until capacity growth is below the growth in the demand factor.”
– With files from 650 CKOM’s Chris Vandenbreekel.