Business

The potash hangover

Oversupply and falling prices are hurting the once-promising industry

In 2010, when Ottawa blocked Australia’s BHP Billiton’s purchase of Potash Corp., the business was booming. Prices for the fertilizer seemed to be ever rising along with global demand. After BHP’s bid was rejected (on the grounds it wouldn’t be of net benefit to Canada), the company made plans to open its own $14-billion mine in Saskatchewan. Potash mining worldwide ramped up.

But now the industry is experiencing a major hangover, with overcapacity and falling prices. Potash now sells at $425 per tonne, nearly half its peak price of $860 in 2009. Last month, Potash Corp. temporarily closed two Canadian mines for eight weeks, affecting 600 workers. BHP may be forced to halt construction of its new mine; one Bank of Montreal analyst noted that new capacity won’t be needed “for at least another decade.”

Despite falling prices, many farmers view potash as a luxury they can’t afford. In India, demand has dried up as farmers turn to cheaper alternatives like nitrogen-based urea. Executives remain hopeful, citing a deal this month between Canpotex Ltd., North America’s biggest potash seller, and China’s Sinofert Holdings Ltd. Even so, that deal is for $70 less per tonne than the last contract between the two firms, signed in March.

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