PotashCorp to idle two mines temporarily

PotashCorp (NYSE, TSX:POT) has responded to the ongoing slump in the potash market with more plans to curtail production.

In a press release, the fertilizer giant said it is responding to market conditions by "adjusting inventory" at its Allan and Lanigan operations- meaning the two mines will stop producing for 4 weeks starting March 20. The temporary stoppages, designed to coincide with maintenance shutdowns, will reduce the company's 2016 output by around 400,000 tonnes. No layoffs are expected to result.

The decision is the latest of several taken by PotashCorp in an effort to improve its bottom line. In November the world's largest crop nutrient company by capacity announced it would close its New Brunswick mine, Penobsquis, and take inventory shutdowns at three mines in its home province of Saskatchewan. Then in January, PotashCorp said it is "indefinitely" halting operations at its relatively new Picadilly mine, also in New Brunswick, in response to falling potash demand and weakening prices.

The company, which had more than 5,000 employees worldwide at the end of 2014, said the suspension, effective immediately, would lead to 420-430 job cuts.

And a month ago, the company announced it would cut its dividend by a third in response to weaker sales volumes and lower fertilizer prices, after seeing its fourth-quarter profit cut in half.

Potash prices have fallen to under $300 a tonne from a peak of around $900 a tonne in 2008. The Financial Post quotes analysts at Macquarie as saying that prices could average US$254 a tonne in 2016 due to "ongoing weakness in agricultural commodities and depreciating currencies in emerging markets." The Australian investment bank expects global potash demand to fall by 4.4 million tonnes this year, with the largest declines coming in Southeast Asia, India and Brazil.

Meanwhile, weakness in the potash and oil markets is taking a toll on Saskatchewan's economy, which is heavily dependent on both commodities. An economist at CIBC Capital Markets, told the Globe and Mail on Feb. 1 that he expects the provincial economy to shrink by half-a-percent in 2016, the same as in 2015. Saskatchewan in November projected a $262-million deficit for 2015-16.

The good news for PotashCorp is all the bad news has not significantly impaired its stock price. While POT is down a hair year to date (-0.12%), it has gained 10.5 percent over the last month.

Image of Saskatchewan potash mine by Tony Hisgett