Nutrien upbeat on potash in 2020 despite mine downtime

Nutrien Ltd. [NTR-TSX, NYSE], the world’s largest producer of potash fertilizer, said Thursday September 12 that it is taking temporary downtime at three mines in Saskatchewan.

The company said it expects to proactively take up to eight-week inventory shutdowns at its Allan, Lanigan and Vanscoy mines during the fourth quarter of 2019. The shutdowns are expected to begin in November and could impact up to 700 miners across the three sites.

It said the production downtime is in response to a short-term slowdown in global potash markets. If all three potash facilities were to remain idled for the full eight weeks, potash production could be reduced by approximately 700,000 tonnes and potash annual EBITDA (earnings before interest, tax and depreciation) could be reduced by US$100-US$150 million.

Nutrien spokesman Will Tigley attributed the shutdown decision to weak palm oil prices that reduced fertilizer demand in Indonesia and Malaysia, and a suspension of potash imports into China that began on September 1, 2019.

Nutrien shares declined slightly on the news, falling 1% or 69 cents to $67.65. The shares are currently trading in a 52-week range of $59.97 and $76.17.

The product of an amalgamation involving Agrium and Potash Corp., Nutrien is the world’s largest provider of crop inputs and services. The company can produce and distribute 27 million tonnes of potash, nitrogen and phosphate products worldwide.

When the company reported its second quarter results in July, 2019, the company said it was hit by unprecedented wet conditions in the United States. “U.S. weather in the first half [of 2019] was so severe it nearly eliminated global demand growth for crop inputs,” the company said.

Global potash prices in the first half of 2019 were largely stable across key spot markets as import demand was strong particularly from China and Brazil. At the same time, supply was tight due to further production delays from green field projects, Nutrien said.

However, due to weather and policy-related issues impacting the second half of 2019, Nutrien lowered its projection of global potash deliveries to 65-67 million tonnes. Its 2019 potash sales volume guidance was also reduced to 12.6 to 13.0 million tonnes from the previous estimate of 13.0 to 13.4 million tonnes.

“North American spring potash demand was impacted by weather related delays and lower crop planting, of which only a proportion is expected to be made up in the fall,” Nutrien said. “Chinese demand could be deferred by import policies, while potash demand in India is being negatively impacted by a below normal monsoon,” the company said.

Based on its first half results and market factors detailed above, Nutrien lowered its 2019 net earnings forecast to US$2.70 to US$3.00 per share. That’s down from an earlier estimate of US$2.80 to US$3.20. Adjusted EBITDA guidance was also lowered to US$4.35 to US$4.70 billion from US$4.4 to US$4.9 billion.

Despite the current short-term market conditions, we remain positive on potash demand for 2020, as well as the medium to long-term potash fundamentals, Nutrien said in a press release Thursday.