Potash Corporation of Saskatchewan Inc. (PotashCorp) has announced it is taking the difficult but necessary step to reduce its workforce in Canada, the U.S. and Trinidad by approximately 18% from current levels.
The company expects workforce reductions by region as follows:
- Saskatchewan – approximately 440 people
- New Brunswick – approximately 130 people
- Florida – approximately 350 people
- North Carolina – approximately 85 people
- Other U.S. locations and Trinidad – approximately 40 people
Despite confidence in the long-term drivers of its business, a significant portion of fertilizer demand comes from developing markets where growth has been less robust than expected, said PotashCorp President and CEO Bill Doyle. “This sluggish environment has been most visible in our potash and phosphate businesses, and has contributed to challenging market conditions. As a consequence, we must make some difficult decisions to ensure the company continues to be well positioned for the future,” he said.
Following a comprehensive review of business and operational needs, changes were identified to:
- Respond to market conditions;
- Reduce costs to enhance the global competitive position of the company; and
- Maintain operational flexibility in potash to meet anticipated future demand growth.
The changes are intended to optimize PotashCorp’s lowest-cost operations, while retaining the ability to respond to expected demand levels and product needs of its customers, Doyle said. All three business operating segments (nitrogen, phosphate and potash), as well as corporate services, will be impacted by these reductions.
“This is a difficult day for our employees and our company,” Doyle said. “While these are steps we must take to run a sustainable business and protect the long-term interests of all our stakeholders, these decisions are never easy. We understand the impact is not only on our people, but also in the communities where we work and live, and PotashCorp will work hard to help those affected through this challenging time.”
Potash prices have been sliding since mid-summer, when the biggest global producer, Russia’s Uralkali OAO, quit its export partnership with Belaruskali of Belarus and said it would seek to maximize sales volume.
Doyle said he had “no idea” when or if Uralkali and Belaruskali will return to a strategy targeting higher prices and reverse what he has called “the single dumbest thing” he has ever seen.
The turmoil in the usually tightly controlled potash industry, dominated by Uralkali and North America’s Canpotex Ltd. export group, has caused buyers to head for the sidelines to await further price reductions.
“While the (job cuts) announcement blames soft demand in developing markets, we believe the real culprit is the BPC (Uralkali-Belaruskali) break-up and the resulting price declines in both (phosphate and potash),” BGC analyst Mark Gulley said in a note to clients.
Potash demand was weak even before last summer’s spat between Uralkali and Belaruskali; buying from key importers India and China has been particularly sluggish.
Typically, potash demand grows 3% annually, but it has been flat since 2007 due to the recession, Doyle said.
He said Indian demand, influenced by government subsidies on fertilizer, is unlikely to improve much until after Indian elections this spring.
Doyle said spot Chinese purchases should resume this month. A contract between Canpotex – the export arm of PotashCorp, Mosaic Co. and Agrium Inc. – and China’s Sinofert Holdings Ltd. will likely be reached by the end of January, he said.
PotashCorp said on Tuesday it would suspend production at one of its two mills in Lanigan by year-end and cut production at its Cory operations. Both operations are in Saskatchewan. It also plans to stop production at its Penobsquis facility in New Brunswick at the end of the 2014 first quarter.
Doyle said the company will still have the ability to supply buyers with more than 10 million tonnes of potash in 2014, combining production with its large stockpiles.
He could not predict how much potash the company will produce in 2014. But he said 2013 production is likely to amount to around 7.75 million tonnes, a little over half of the company’s capacity, reflecting output curbs.
“We’ll sell exactly what we were going to sell anyway,” without the job cuts, Doyle said. “This doesn’t affect in any way our ability to service our customers.
“We just had too much capacity versus what we were seeing needed in the foreseeable future.”
Sources: PotashCorp News release, Reuters