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By Deepika Thapliyal
LONDON (ICIS)--Sluggish demand for potash and phosphates fertilizers has prompted Potash Corporation of Saskatchewan (PotashCorp) to slash its workforce by 18% across the company’s fertilizers segments, and lower or cease production at its potash and phosphates mines, the company said on Tuesday.
This drastic move by the company to cut costs follows a breakup of the Russian potash marketing cartel at the end of July, which set potash prices down by over $50-100/tonne in major emerging markets and added to the overall reluctance of buyers to make purchases.
PotashCorp is part of the second marketing cartel of three North American producers which also includes Mosaic and Agrium.
With no recovery in sight for potash prices, it is hard to assess how long the market will remain in this phase of uncertainty. As a result, producers such as PotashCorp have seen their revenues drop over the last few months, with the company's third-quarter net income down sharply, at $356m from $645m in the same quarter last year. The crop nutrient accounts for more than half of PotashCorp’s annual earnings.
The workforce reduction will affect 1,045 people in total in Canada, the US and Trinidad, across the company’s potash, phosphates and nitrogen segments.
The job cuts will be at Saskatchewan (440), New Brunswick (130), Florida (350), North Carolina (85) and other US locations and Trinidad (40).
“While these are steps we must take to run a sustainable business and protect the long-term interests of all our stakeholders, these decisions are never easy,” CEO Bill Doyle said.
The company says growth in developing markets has been less robust than expected, with the sluggish environment most visible in potash and phosphate businesses.
So, PotashCorp is also suspending, reducing or ceasing potash production at facilities in Saskatchewan and New Brunswick.
The producer will suspend production at one of its two Lanigan mills by year end; reduce production at its Cory facility by year end; and cease production at the Penobsquis, New Brunswick facility at the end of the first quarter of 2014.
The closure of the Penobsquis facility would help the producer accelerate development activities at its Picadilly mine, PotashCorp said.
The company did not indicate how much production would be reduced by at the Cory mine, but said plans for Cory and Lanigan provide the flexibility to ramp-up operations if the market improves.
The Allan and Rocanville facilities in Saskatchewan are not expected to be impacted for the time being, and the producer expects to have over 10m tonnes of potash for sales in 2014 despite the recent changes.
Expansion plans at Rocanville, which is the producer’s lowest-cost operation, is expected to continue as previously announced. The Rocanville project is approximately 90% complete, the company said.
The Allan mine has an annual operational capacity of 2.5m tonnes, Rocanville 2.8m tonnes, Lanigan 3.4m tonnes, Cory 2.6m tonnes and New Brunswick 800,000 tonnes.
In the phosphates segment, PotashCorp plans to close the Suwannee River chemical plant in the second half of 2014, one of two at its White Springs, Florida phosphate facility.
The producer expects to partially offset the loss of capacity at White Springs by higher operating rates at its Aurora phosphate facility.
The job cuts and production changes are expected to be implemented immediately, and the company plans to complete most of these changes in 2013.
PotashCorp expects the changes to result in lower per-tonne operating costs, with cost savings in the potash segment estimated at $15-20/tonne in 2014 with a targeted reduction of $20-30/tonne by 2016 from current levels.
In phosphates, PotashCorp expects an annualised gross margin improvement of approximately $10-15/P2O5 (phoshate rock) tonne.
PotashCorp is not the first fertilizer producer to announce a cost-cutting drive. In mid-November, Germany-based K+S AG said it would costs by $670m (€496m) over the next three years following the uncertainty that has dominated the potash market in recent months after the split of the Russian-Belarus trading venture.
($1 = €0.74)
Graeme Paterson contributed to this story