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An In-Depth Analysis of PotashCorp and Its 2017 Outlook

PART:
1 2 3 4 5 6 7 8 9
Part 5
An In-Depth Analysis of PotashCorp and Its 2017 Outlook PART 5 OF 9

A Look at PotashCorp’s Gross Margins

Gross margins

In the previous part of this series, we saw how falling realized prices of fertilizers have impacted PotashCorp’s (POT) sales. Lower prices have also impacted margins for fertilizer companies (MOO) CF Industries (CF) and Mosaic (MOS). For some, the impact has been worse—Intrepid Potash (IPI) is at the mercy of a rebound in potash prices. For more on Intrepid Potash, read Key Updates on Intrepid Potash Stock and Its Outlook.
A Look at PotashCorp&#8217;s Gross Margins

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Margins contract

PotashCorp’s gross margin contracted from 46% in 2012 to just 21% in 2016. In 2016, its margin took a significant hit, contracting from 39% in 2015. As shown in the chart above, it is clear that the Potash segment has a wider gross margin than the Phosphate and Nitrogen segments. In 2016 alone, the Potash segment’s gross margins stood at 32%, compared with the Nitrogen segment’s gross margin of 27% and the Phosphate segment’s gross margin of 3%. The Phosphate segment has had the smallest margins.

A Look at PotashCorp&#8217;s Gross Margins

Potash margins

PotashCorp is a cost leader in potash fertilizer. In the chart above, we’ve organized potash producers according to costs of production and realized prices in 2016. PotashCorp, the largest producer of potash fertilizer, was the lowest-cost producer, with a cost per ton of $106.

When we look the averaged realized prices of potash products for these companies, they don’t follow the same path. PotashCorp had the lowest realized price at $158 per ton. With its low cost of production, even at this price, it had a positive margin. In contrast, both Mosaic and Intrepid Potash sold at prices lower than their costs of production. In other words, these two companies sold potash at a loss. Next, we’ll discuss how all of this has trickled down to the company’s bottom line.

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