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PotashCorp’s Shipments Came in Lower than Guidance

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Potash’s potash segment shipments in 4Q15

The Potash Corporation of Saskatchewan’s (POT), or PotashCorp’s, potash segment contributes about 40% to the company’s total revenues and about 58% of the company’s gross margins. In 4Q15, this segment experienced a 41% fall in revenues, dropping to $454 million from $777 million. To understand why this segment’s revenue fell, we have to look at the segment’s shipments and average selling prices.

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Total shipments

In 4Q15, PotashCorp’s potash segment shipments declined to just over 1.7 million metric tons from 2.5 million metric tons in 4Q14. This was well below the company’s guidance of about 1.9 million metric tons. The lower sales volume resulted from the company’s closure of its Penobsquis facility as well as from shutdowns to curtail the inventory during the quarter.

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Outlook for 2016

For 2016, the company expects its potash shipments to come in the range of 8.3 million–9.1 million tons, which would compare to the 8.7 million tons it saw in 2015. The company expects its shipments in 2016 to remain “strong” despite high inventory levels. In 2016, the company anticipates the global potash shipments to be in the range of 59 million–62 million tons.

Why all the optimism?

This latest guidance hinges on the company’s anticipation of customers settling contracts to meet planting requirements in the spring, as well as on the anticipation of a “normal monsoon” in India. Subsidies in India have been a subject of discussion for potash producers, as subsidies make fertilizers affordable to the customers. However, the company has stated that it expects demand in the region to “continue even without meaningful subsidy.” The company also anticipates a “modest” demand in South Asia on the back of upcoming planting season.

The company stated that it will see an increase in shipments in North America in an anticipation of a favorable crop environment and customers who will replenish their low potash inventories.

Still, on the whole, 4Q15 was a weak quarter for the entire industry, which was also negative for the Mosaic Company (MOS), CF Industries Holdings (CF), and Intrepid Potash (IPI). This downturn also impacted the VanEck Vectors Agribusiness ETF (MOO), which holds about 4.3% in PotashCorp as a percentage of its total portfolio.

In the next part, we’ll gauge the impact of PotashCorp’s lower selling price in 4Q15.

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