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PotashCorp warns on year-end earnings

Reiterating that it expects profits to rebound on pent-up demand for potash, the world’s largest potash producer has cut its earnings guidance for fiscal 2009.

Potash Corporation of Saskatchewan (PotashCorp) said Friday that it now projects full-year 2009 earnings of $3.25 to $3.75 per share, down from the $4-$5 range it forecast in July.

“The change primarily reflects lower than forecasted potash sales volumes due to continued slow demand and limited restocking by fertilizer distributors around the world,” the company said.

Nearly 20 million tonnes of potash production has been curtailed by potash producers worldwide in the past 12 months, PotashCorp said in a statement Friday. For its part, the Saskatoon company said it “will continue to keep a tight rein on our production until demand returns in the new year.”

Nevertheless, the company said, “our 2009 earnings are still expected to be among the best in company history, despite an anticipated decrease of 60 per cent in year-over-year potash volumes and an 85 per cent decline in our combined phosphate and nitrogen gross margin.”

PotashCorp said the shorter-term impact of farmers’ fertilization cutbacks has been “masked by good weather and residual soil nutrient levels in markets with healthy long-term fertilization and agronomic practices, such as the U.S. and Australia.”

However, the company said, yields for key crops in several other major growing regions are expected to be substantially below 2008 levels.

“A significant rebound is required to address this situation and we expect 2010 global potash demand to be in the range of 50-55 million tonnes.”

“Decisions related to fertilizer use today inevitably impact crop yields — and soil needs — for years to come,” CEO Bill Doyle said Friday.

“As farmers around the world begin the lengthy process of replenishing nutrients in the soil, we anticipate a new wave of demand growth that will allow us to once again demonstrate the full potential of our company.”

Potash market observers have noted that despite major production cuts, potash inventories still climbed through the first half of 2009 while farmers mindful of high potash prices put off their applications.

The Reuters news service noted last week that India in July signed major potash import contracts at $460 a tonne, well below the July spot market price of around $700 per tonne and India’s 2008 contract price of over $600.

Reuters also noted that some buyers and distributors are still waiting for China’s importers to finalize their annual potash contract, anticipating even lower prices to come.

The Chinese and Indian contracts are often seen as setting the tone for spot market pricing in potash, Reuters observed.

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