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Threats to Sask. potash industry

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TORONTO -- Saskatchewan's economy could be hit hard by lower potash prices now that a key rival is out of a European cartel, with one prediction cutting the province's economic growth in half this year.

Uralkali, one of the world's largest potash producers, said Tuesday it will end its export sales through the Belarusian Potash Company and direct all export volumes through its own Uralkali Trading.

The breakup of the cartel was taken as a sign Uralkali will be able to drive down the price of potash by as much as 25 per cent, affecting other rival producers in Canada and the U.S.

It's a possibility that led to large drops in the stock price of PotashCorp, Mosaic and Agrium, companies with major potash operations in Saskatchewan.

Potash, a main ingredient used in fertilizers, is key to Saskatchewan's economy, and the suggestion of a possible slide in that market raised questions about what effects may be felt by the province and the Canadian economy.

"It is a sector that has in the past had a material impact on growth and that can be the case again for 2013," said Paul Ferley, assistant chief economist at the Royal Bank of Canada.

If there were double-digit declines in potash production over the second half of this year resulting in flat mining output for the year, he said, that could reduce growth in the province by about a percentage point.

An additional reduction in capital spending on the potash sector, with a five per cent decline in construction spending, could reduce GDP growth by a further half a percentage point.

"The combination of both of those would subtract a percentage point and a half. Our current forecast of 2.9, so it suggests a halving of the growth rate," Ferley said.

But he warned it's too early to say how aggressively the overseas producers might increase production and how the producers in Saskatchewan, which has one of the world's largest deposits of the mineral, may respond to the changes.

Bill Johnson, a spokesman with PotashCorp, said the company was still assessing the situation. For the moment, it is operating as usual and continuing with its expansion in the province.

PotashCorp is the largest and best-known of North America's potash producers and the largest partner of Canpotex, a company set up to market the three companies' products in export markets such as China.

A spokeswoman for Saskatchewan Premier Bard Wall said it was too soon to know the effect of the announcement on price, production and provincial potash revenues. Potash production accounts for about two per cent of Saskatchewan's economy.

"We will be monitoring these developments closely and speaking with Saskatchewan potash producers to gain a better understanding of the potential impact," Kathy Young said.

"We will also be evaluating the potential impact on potash revenues, which will be reflected in the first quarter financial report when it is released in August."

CIBC economist Avery Shenfeld said potash production makes up just under a half per cent of Canadian GDP and represents about 1.5 per cent of Canadian goods exports. A drop of 25 per cent in volumes in the third quarter, would entail a drop of about 0.1 per cent in real GDP, or roughly 0.4 per cent at annual rates.

 

-- The Canadian Press

Republished from the Winnipeg Free Press print edition July 31, 2013 B8

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