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Why PotashCorp Dominates in Potash Gross Margins

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Potash gross margins

In the previous parts of this series, we looked at the shipments and prices for potash fertilizers. Let’s continue by looking at gross margins in the potash segment.

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PotashCorp tops in margins

The median gross margin for the potash segments of the five companies in the above chart was 24%. A year ago, in 3Q16, the median was 9%. In the above chart, it’s clear that PotashCorp (POT) dominates the other companies in terms of margins for its potash segment. In 3Q17, its gross margin for the segment was 51%, which rose from 29% a year ago in 3Q16. Israel Chemicals (ICL) was next, with its gross margin for the potash segment at 41% compared to 12% a year ago.

Intrepid Potash (IPI) was next, with a gross margin of 24% compared to a gross deficit of 21% a year ago in 3Q16. Mosaic’s (MOS) gross margins improved from 9% to 21% in 3Q17. Among the companies in the above chart, Agrium (AGU) had the lowest gross margins at 10%. However, Agrium’s margins expanded from 1% in the corresponding quarter a year ago.

PotashCorp’s strategy

Year-over-year, all of the above companies saw their margins expand for the potash segment. In the commodities business, a rise in prices is analogous to a rising trend for all. So a YoY improvement in potash prices, as we saw in the earlier part of this series, helped margin expansion for all these companies during the quarter.

PotashCorp is one of the lowest-cost producers in the potash industry (XLB) globally and has in recent years worked to further lower its cost of production. Year-over-year, the company’s cost of production per ton fell 16%. On the other hand, Agrium’s costs rose 10% over the same period.

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