THE CANADIAN PRESS
REGINA - A slow start to the planting season in the U.S. and extended negotiations with offshore buyers has forced Potash Corporation of Saskatchewan Inc. (TSX:POT) to make another output cut, triggering a sharp selloff in the company's stock price Wednesday.
The Saskatoon-based fertilizer giant, the world's largest potash producer, says it will reduce its 2009 output again, this time by 800,000 tonnes. That brings curtailments this calendar year to 4.7 million tonnes and total curtailments to 5.5 million tonnes since August 2008.
Shares of PotashCorp. (TSX:POT) tumbled $12.66 or 10.5 per cent to $108.34 in heavy trading on the Toronto Stock Exchange.
"In the short-term we continue to see a softness in customer demand and as a result we've got a lot of inventory at our warehouses and throughout the system," PotashCorp spokesman Bill Johnson said Wednesday.
"The production curtailments that we've announced are really just a reaction to how much inventory there is in the system right now. We remain that hopeful that it's a relatively short-term phenomena and when demand does return it will return relatively strongly, but in the near term we need to match our production to demand."
The latest production cut will also mean layoffs for workers.
Johnson said employees at mines in Lanigan, Sask., and Allan, Sask., have been given four weeks layoff notice. He couldn't yet say how people would be impacted.
Potash Corp. first laid off workers in January at its Saskatchewan plants in Rocanville, Lanigan and Allan. Although the majority of workers, about 600 of the 940, were kept on to help manage the sites. The mines were later brought back to production.
The Lanigan and Allan mines are now expected to be shutdown from mid-July until Sept. 26. That time includes a typical four week summer shutdown for maintenance.
Another mine in Cory, Sask. will also be shutdown for maintenance and an additional four weeks because of the production cut.
"It's certainly been a very tough year for our work staff at the mines and it's meant that they've not had a whole lot of consistency in their production schedules. We've taken our mines up and down a number of times and we just remain hopeful that we can back to consistent and full demand and keep our people working year round," said Johnson.
Potash Corp. expects demand to return at some point in the second half of 2009 as Brazil approaches its major fertilizing season and buyers in India and China return to the market.
Potash Corp.'s chief executive said earlier this month that the company may resort to selling fertilizer to China on the spot market if the two sides can't renew a three-year supply deal that expires soon. China represents about 12 per cent of Potash Corp. total business.
"I think once we get contracts settled with India and China that will provide a bit of a foundation underneath the marketplace, but right now we've got a lot of customers who are standing on the sidelines," said Johnson.
"They're doing what's called de-stocking, which is to say that there's still fertilizer going into the ground but our customers, who are some of the retailers, are not necessarily reordering as quickly as we might have thought they would."
Johnson also said the company is "quite confident" that 2010 will be a very strong year.
"We think that when demand does return, it will return very quickly and we'll start working through this inventory quite quickly."
