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China may not sign a potash supply agreement with North America’s largest producers of the crop nutrient until next year as it holds out for a lower price than the one agreed to in the first half, according to Mosaic Co. (MOS)
China is “very determined” to pay less than the $470 a ton it negotiated for the first six months of 2012, Mosaic Chief Executive Officer Jim Prokopanko said. The country is being helped in the standoff by an increase in imports by rail from Belarus, he said yesterday in a telephone interview from Mosaic headquarters in Plymouth, Minnesota.
China “could probably ride out the balance of the calendar year before they buy again,” Prokopanko said. “It could be months, or even into the new calendar year.”
Mosaic, the largest U.S. potash producer, cut output in the quarter ended Aug. 31 because of “soft” demand in India and China, the company said yesterday in its fiscal first-quarter earnings statement. Mosaic and its biggest North American competitors, Potash Corp. of Saskatchewan Inc. and Agrium Inc. (AGU), negotiate potash exports through Canpotex Ltd., their jointly owned international trading arm.
The price of potash for immediate delivery in China has declined, indicating that if a new contract was established now it wouldn’t be at the same price as the first-half accord, Richard McLellan, senior vice president, commercial at Mosaic, said yesterday in a conference call with analysts.
Mosaic’s potash production fell 21 percent to 1.5 million tons in the quarter through August while sales volumes were 5.6 percent higher at 1.9 million tons.
“We’ve seen our sales into Indonesia and Malaysia increase and in other Southeast Asian markets, so net net we’re OK,” said Prokopanko, 59.
India probably won’t sign a potash supply agreement with North American producers until the China talks are completed, he said. India has cut imports because of a weaker rupee and budgetary constraints, Horst Hueniken, a Toronto-based fund manager at Dundee Corp. (DC/A), said in an Oct. 1 interview.
Mosaic fell 3.9 percent to close at $55.76 yesterday in New York after the company’s earnings and revenue missed analysts’ estimates.
Net income (MOS) fell 18 percent to $429.4 million, or $1.01 a share, from $526 million, or $1.17, a year earlier. That trailed the $1.15 average of nine estimates compiled by Bloomberg. Sales slid 19 percent to $2.51 billion, less than the $2.69 billion average of 14 estimates.
Mosaic’s North American phosphate output dropped 9.1 percent to 2 million tons while sales were 16 percent lower at 2.7 million tons. The market for phosphates, which accelerate crop maturity and increases the ability of plants to benefit from sunlight, continues to be “tight,” Prokopanko said in the statement.
“Demand for our products outpaced our ability to produce and deliver,” he said in the statement. “We expect better execution in the quarters ahead.”
Farmers who saw their crops damaged in the worst U.S. drought in half a century are considering their alternatives for the fertilizer application season in the coming months. While the drought spurred corn futures to record highs, some farmers may skimp on crop nutrients because low yields and the interrupted growing season may have left phosphate and potash fertilizer in the ground, Hueniken said.
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