Lower potash production to drag down Saskatchewan economy

17 September 2013 20:10  [Source: ICIS news]

HOUSTON (ICIS)--Expected declines in potash production should slow down the economy of the Saskatchewan province in Canada, the Royal Bank of Canada (RBC) said on Tuesday in a report.

The downward revision of potash production forecasting has prompted a lowering of the projected gross domestic product to 2.7% for the rest of this year and into 2014, versus earlier estimates of 2.9% for 2013 and 3.7% for 2014, according to the RBC Economics Provincial Outlook.

Through mid-2013, the region’s potash production had been steadily increasing at a pace of around 13%, mainly because of contract business between the province’s fertilizer producers and their overseas customers.

But in late July, the world potash market was thrown into disarray when Russian producer Uralkali broke away from its trading venture with Belaruskali.

The Belarusian Potash Co (BPC) venture was severed when Uralkali said it would strike out on its own and increase production even if it meant lower prices for the crop nutrient. In breaking away, Uralkali accused Belaruskali of selling product independently and destroying the fundamentals of their agreement.

“The key question mark hanging over the outlook for Saskatchewan is the near-term direction for production of, and investment in, potash in the province in the wake of these developments. There is still considerable uncertainty around the response by potash producers in the province," said Craig Wright, RBC chief economist.

"However, we have assumed a sharp cutback in provincial potash production relative to the first part of 2013, resulting in much slower production growth in 2013 and 2014," he said.

In the outlook, RBC said that the cuts to production and potential future pricing will also hinder capital spending within the province despite the fact that BHP Billiton has announced its intention to continue work on the Jansen Potash mine.  

By: Mark Milam
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