Although the duration and depth of the global economic crisis are impossible to predict, PotashCorp of Saskatchewan asserts that this does not alter the underlying fundamentals that drive long-term growth in demand for fertilizers.
In potash, growth in demand has exceeded increases in new supply, consuming all available potash production in recent years and leaving major markets short and on allocation through much of 2007 and 2008, the company said.
While nitrogen and phosphates prices have fallen precipitously, the long-term underlying fundamentals for potash remain strong, according to PotashCorp.
Meanwhile a new potash facility carries financial challenges. The cost is measured in billions of dollars and the timeline for first production and any positive cash flow is at least five to seven years with subsequent lengthy ramp-up after construction completion, the company said.
There are also significant qualitative issues such as the rarity of good deposits, difficulty in obtaining financing in the current credit environment, geological and geopolitical risks involved in this type of long-term project and the world's limited amount of expertise and specialized equipment needed to successfully execute a potash project. Numerous mines have been damaged or destroyed by water inflow, an uninsurable hazard that can wash away investment capital. Despite increases, current potash prices still represent a challenge in justifying a greenfield investment.
PotashCorp expects the 2009 gross margin for potash to range from $4.5 billion to $5.5 billion, with total shipments flat to slightly below last year's levels. The company intends to curtail production from its 2009 operational capacity in this year by more than 2 million tonnes. Sales are expected to be more heavily weighted to the last three quarters of this year.
In spite of high solid phosphate inventories worldwide, phosphate rock prices have been in the $250-$290 per tonne range early this year, while phosphoric acid prices remain above $1,000 per tonne. PotashCorp expects that the combination of significant capacity curtailments occurring around the world and strong underlying rock and acid prices will strengthen solid fertilizer markets once demand returns. Until then, we plan to curtail all production of finished phosphates at our White Springs facility through the first half of 2009, and will run Aurora at reduced rates through the first quarter.
PotashCorp expects capital expenditures, including capitalized interest, to approximate $1.8 billion this year, of which $250 million will be sustaining capital.
The company reported a net income of nearly $3.5 billion for 2008 ($11.37 per share), compared to $1.1 billion ($3.50/sh) for 2007. For the fourth quarter of 2008, PotashCorp reported a net income of $788 million or $2.63 per share, compared to $376.8 million ($1.19/sh).