27 July 2006
Potash Corp. Hails Chinese Deal, Reports Record Quarter Profit
A major Chinese fertilizer importer has agreed to a price increase
for Saskatchewan potash, clearing the way for shipments to resume, Potash Corp. announced Thursday.
Potash shipments to China and India, two major markets for the fertilizer ingredient, have been halted pending the result of price
negotiations. The lack of shipments has also had an impact on Canadian Pacific Railway.
The agreement to increase the price by $25 a tonne was reached between Canpotex Ltd., the offshore marketing company for Saskatchewan
potash producers, and Sinofert, a fertilizer importer and producer in China.
Potash Corp., the world's largest potash producer, said the amount of potash to be shipped and the shipping schedule under the agreement
will be completed in "an evolving manner" throughout the rest of the year.
"We are pleased that a significant price increase has been put in place for this year, which essentially has five shipping months
remaining. Given depleted potash stocks at the consumer level around the world, we look forward to strong demand for the balance of this
year and through 2007," Bill Doyle, CEO of Potash Corp., said in a statement.
Potash Corp. owns one-third of Canpotex and is entitled to supply Canpotex with 55.8 percent of its potash. Potash Corp
also owns 20 percent of Sinofert.
Earlier Thursday, Potash Corp. reported a record-high second-quarter profit of $175.1 million US, up from a
year-earlier $164.2 million US, crediting nitrogen and phosphate sales.
Earnings for the quarter ended 30 Jun 2006 amounted to $1.65 US a diluted share, compared with $1.46 US per share a year
ago, the Saskatoon-based company said Thursday.
Sales slipped to $928.7 million US from $1.1 billion US.
Potash Corp. credited "continued strong nitrogen and phosphate performance, significant contributions from offshore investments and
favourable changes to Canadian federal and provincial income tax rates."
But the strengthening of the Canadian dollar hurt earnings, increasing a primarily non-cash foreign-exchange
loss by 14 cents a share and raising potash production costs by the equivalent of five cents per share.
The results included a non-cash charge for stock-option expenses of 15 cents a share and cash costs related to
potash mine shutdowns, five cents a share.
Investments in Arab Potash Co. in Jordan, Sociedad Quimica y Minera de Chile (SQM) in Chile and Sinochem Hong Kong Holdings Ltd. in
China contributed $19 million US.
"This quarter demonstrated the importance of our nitrogen and phosphate operations, as well as the effectiveness of our potash
strategy as prices remained strong and we achieved record net income even without potash shipments to China," Doyle said.
"We matched our potash production to meet demand during a period of short-term disruption, even as we prepared our
operations to meet the increasing longer-term needs of global potash customers."
Potash shipments continued to be constrained through the second quarter as pricing in China and India was unresolved.
"These negotiations had a far-reaching impact, as several markets in Southeast Asia and Latin America (including
Brazil) pulled product from internal inventories, delaying purchases while they monitored potash pricing," the firm said.
"Sales in the North American market were also weakened through the spring season by low crop commodity prices and fewer corn acres
planted. As a result, it is estimated that North American consumption was off 10 to 15 percent for the 2005/2006 fertilizer year ending
30 Jun 2006."
Compounding this was the effort of fertilizer dealers to finish the season without inventories, which further reduced potash shipments.
On the Toronto stock market Thursday afternoon, Potash Corp. shares were up $4.23, or 4.25 percent, at $103.71.
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