Key Highlights
Third-quarter earnings of $0.10 per share1
Record third-quarter potash sales volumes
Canpotex2 sold out for fourth-quarter 2016
Full-year 2016 earnings guidance range adjusted to $0.40-$0.45 per share
Announced agreement to combine in merger of equals with Agrium Inc. (Atrium)
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Potash
A weaker pricing environment relative to the same periods last year was the primary reason that potash gross margin of $106 million for the quarter and $317 million for the first nine months trailed the 2015 results of $294 million and $1.1 billion, respectively.
Record sales volumes of 2.5 million tonnes for the third quarter were 16 percent higher than in the same period last year. Nonetheless, volumes of 6.4 million tonnes for the first nine months were 9 percent below the comparable period in 2015 as lack of engagement in key contract markets limited offshore deliveries earlier in the year. Canpotex achieved record third-quarter shipments, with the majority of sales volumes to Latin America (35 percent) and Other Asian markets outside of China and India (32 percent), while India and China accounted for 19 percent and 11 percent, respectively. North American volumes reached a new third-quarter record, up 49 percent from the previous year, while domestic shipments for the first nine months were up 24 percent compared to 2015.
Our average realized potash price of $150 per tonne for the third quarter was down from $250 per tonne in the same period last year, reflecting the significant price decline experienced in the first half of 2016.
Per-tonne manufactured cost of goods sold for the quarter averaged $106, down from $113 per tonne in the same period last year. Optimization of production to our lower-cost mines as well as lower royalties more than offset the benefit realized in the comparable period of 2015 when maintenance costs were deferred from the third quarter to the fourth quarter.
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Potash Market Outlook
We expect strong customer engagement will continue in the fourth quarter, with a healthy order book in place for fall application in the domestic market and Canpotex fully committed through the remainder of the year. We maintain our 2016 global shipment estimate of 58-61 million tonnes and anticipate fundamentals to remain supportive as we enter 2017.
In North America, all signs point to another record harvest. Strong affordability and significant nutrient removal are expected to support demand through the final months of 2016. For the full year, we expect shipments in the range of 9.2-9.7 million tonnes, consistent with our previous estimate and above 2015 levels.
With its substantial agronomic need and favorable crop economics, we expect shipments to Latin America will remain robust for the rest of the year and we have increased our full-year shipment range to 11.0-11.5 million tonnes, slightly above the previous year.
In China, deliveries under 2016 contracts are expected to support shipments for the balance of the year. We estimate annual shipments in the range of 13.5-14.5 million tonnes, consistent with our previous estimate but below last year’s record level. Even with healthy second-half deliveries, we expect strong underlying consumption will keep inventories well below those seen at the beginning of 2016.
In India, lower farm retail prices are expected to support increased consumption for the remainder of 2016. However, given the slow pace of shipments due to contract delays earlier in the year, we have lowered our range to 3.5-4.0 million tonnes, below 2015 levels. Canpotex has commitments to ship to its customers in this market for the rest of 2016.
In Other Asian markets, we expect good buyer engagement for the rest of 2016, supported by lower inventories, strong palm oil prices and improved moisture conditions. We have maintained our estimated shipment range of 8.3-8.7 million tonnes, slightly below 2015’s total.
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www.potashcorp.com/news/webcast/2200/
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