Nutrien positive on potash despite $1bn third-quarter loss

LONDON (ICIS)–Growing pains continue to dog Nutrien, 10 months after the “merger of equals” between muriate of potash (MOP) fertilizer firms PotashCorp and Agrium that created the Canadian agribusiness major.

Nutrien reported this week a net loss of $1.1bn in for the third quarter, a steeper loss than the $53m recorded by the two component firms jointly in the same quarter of 2017.

The primary driver for the third-quarter loss was Nutrien’s decision to shutter its New Brunswick potash facility, following a strategic review of its vast portfolio.

In closing New Brunswick – which has not produced potash since early 2016 – the Canadian major incurred a $1.8bn non-cash impairment charge.

Nutrien	July-Sept 2018	July-Sept 2017*	Change
Sales ($)	4.034bn	3.586bn	448m
Net loss ($)	1.067bn	53m	1.014bn
MOP sales volumes (tonnes)	3.858m	3.311m	547,000

*Consolidated results for PotashCorp and Agrium

The blow was softened somewhat by Nutrien’s claim that it can increase potash production in Saskatchewan at a significantly lower operating and capital cost than resuming production in New Brunswick.

Added to the troubles and costs associated with the – arguably necessary – decision to shutter New Brunswick is Nutrien’s ongoing struggle to divest its stake in Chilean MOP rival SQM, which has been marred in legal tangles for more than two months.

In the latest twist, in end-October Nutrien was the first to applaud news that the long-delayed sale of the stake to Chinese lithium major Tianqui Lithium may soon complete.

The sale was frozen in mid-October, after SQM’s controlling shareholders filed a lawsuit objecting to the move on anti-trust concerns.

However, Chile’s Constitutional Court subsequently rejected the shareholders’ fears.

In a pointed remark at the time, the Canadian major simply said: “Tianqui and Nutrien … are pleased”.

Later, Chuck Magro, Nutrien’s CEO, added: “We remain on track to receive $5bn in net proceeds from the sale of our equity investments”.

That figure would include proceeds from its previous sale of a stake in Jordan’s Arab Potash Company for $502m.

Despite the impairment charge and the SQM spat, Nutrien remains resolutely positive for the remainder of the year, and into 2019.

AIMING HIGH
“We continue to be well positioned to deliver strong long-term shareholder returns,” said Magro.

This typically diplomatic comment is supported by news that Nutrien is on course to hit its long-promised $500m/year run-rate synergy target by the end of 2018.

In fact, so confident is the company’s executive team that they have upped the target to $600m by the end of 2019.

Strong potash sales in the third quarter also give weight to Magro’s comments, with Nutrien recording a 17% year-on-year increase in MOP trading.

Nitrogen sales were similarly stronger, further supported by bullish pricing around the world.

Nutrien Q3 sales volumes
(‘000 tonnes)

Product	Q3 2018	Q3 2017*	Change
Ammonia	750	724	26
Urea	691	626	65
Solutions & nitrates	1,018	929	89
Potash	3.858m	3.311m	547

*Consolidated results for PotashCorp and Agrium

The improved return on nitrogen fertilizer sales has further prompted Nutrien to consider the future of its nitrogen business activity,  including the potential expansion of its nitrogen plants.

While cautioning that greenfield projects do not make economic sense, even amid a more robust time for the nitrogen market, Magro added: “Nutrien is looking at several brownfields through our network, primarily in North America. But it’s a little too early for us to talk specifically about that.”

For Nutrien, that strategy would be likely be geared towards brownfield efforts that could drive either cost efficiencies, or product mix optimisation.

“I think there is going to be a lot of value that we can generate simply by looking at our network,” said the CEO.

“We will most likely have some brownfield expansions. But right now we’re primarily focused on delivering our synergies.”

POSITIVE ON POTASH
Of particular note in Nutrien’s third-quarter results was its claim that capacity curtailments and permanent closures will match or exceed new potash production capacity coming on-stream in 2019.

This news is likely a relief for Nutrien’s competitors, some of whom have previously expressed concern that the company could wield its unused capacity to protect its position as the dominant Canadian MOP producer, and as a potash superpower, potentially at the expense of slowly increasing prices.

Nutrien is believed to have more than 8m tonnes of potential capacity as-yet unharnessed.

In an interview with news agency Reuters in mid-August, Magro said: “There will be a price in the global market, that once we get there, you will see Nutrien put more tonnes into the market because the demand is there. We will not be shy.”

That price has not yet come to pass, it appears.

Nutrien is the world’s single-largest provider of crop nutrients, boasting 22m tonnes/year of MOP capacity in Canada alone, the largest volume globally.

Pictured: Potash being unloaded from the hold of a ship in Ontario, Canada
Source: Design Pics Inc/REX/Shutterstock

Focus article by Andy Hemphill

Additional reporting by Mark Milam