Sept/Oct 2016

Potash producers react to low prices with closures and layoffs

By Joel Barde

BHP Billiton CEO Andrew Mackenzie told analysts and investors in August the company may “mothball” its Jansen project in Saskatchewan, “if the market is not going to be ready for potash in the subsequent three years.” | Courtesy of BHP Billiton

BHP Billiton announced in mid-August it may put a hold on its US$2.6 billion Jansen potash project, located 140 kilometres east of Saskatoon, due to the low demand for and weak price of potash.

Speaking to analysts and investors in London, CEO Andrew Mackenzie said a firm decision was around two years away, but that “if the market is not going to be ready for potash in, say, the subsequent three years, it’s perfectly possible we could mothball the shafts once we’ve completed them and properly lined them.”

Jansen, already 60 per cent complete, is expected to produce eight million tonnes of potash per year when it moves into production, which would make it one of the world’s largest potash mines.

The announcement came just a month after Mosaic laid off 330 workers and suspended production at its Colonsay operation, 60 km east of Saskatoon. Company spokesperson Sarah Fedorchuk called the layoffs temporary and said the company has set a “firm call back date” of January 3.

In June, Canpotex, a consortium that markets and exports Canadian potash internationally, backed out of building a $775-million export facility in Prince Rupert, citing “economic and commercial considerations.”

The slump also prompted the world’s largest producer of potash, PotashCorp, to shut down two New Brunswick operations in November and January, affecting more than 500 workers. According to company spokesperson Randy Burton, while the decision to shut the Penobsquis operation is permanent, PotashCorp may re-open its Picadilly operation if things pick up. “It’s not economical at today’s prices,” said Burton.

PotashCorp also slashed its earning guidance for the fifth time in six quarters at the end of July.

The price of potash has dropped dramatically since it hit record highs in 2008, when it traded at around $900 per tonne. Since 2014, the mineral has hovered at around the $300 mark, and this year it sunk further, sitting at $269 per tonne in April.

According to Scotiabank analyst Ben Isaacson, the potash market is in the process of balancing itself out from the unsustainable boom it experienced in the 2000s.

The boom, he said, prompted established producers to expand and attracted new entrants into the industry, some of whom have been building their mines for years and are now coming on-line with product. Among them is K+S Potash Canada’s Legacy mine, the first new potash development in Saskatchewan in more than 40 years, which is expected to reach its two million tonne per year capacity by the end of 2017.

Isaacson said that the big players are now “self-sacrificing” in order to improve market conditions.

He said he expects demand for potash to improve over the next six to eight months and that there will be a “small rebound” in terms of price. “The recovery in potash prices should be a function of production cuts by the Canadian and [former Soviet Union] producers, as well as demand strength on the back of a potash pricing floor having been established,” said Isaacson.

Mosaic also expects to see a bump in the price of potash. “We believe we’ve hit the bottom of the pricing cycle and expect prices to go up throughout this year and into next year,” Fedorchuk said.

But, Isaacson said, the industry is likely to see net job losses, regardless. “It’s going to be ugly for a few years.”

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