The cloud over the potash sector deepened as Agrium unveiled a gloomy outlook, flagging the threat to fertilizer demand from lower Brazilian sowings of second-crop, while rival K+S saw its credit rating downgraded to junk.
Shares in K+S tumbled more than 4% in morning deals after Moody's cut its debt ratings on the potash group by two notches to Ba1, citing the German-based company's plans to expand in Canada at a time of "significant price uncertainty" in potash markets.
"K+S will likely need to raise additional debt" to fund its so-called Legacy potash mine development in Saskatchewan, "as a result of which the company's financial profile will be subject to sustained material deterioration", Moody's said.
"In addition, K+S will effectively need to suspend its existing financial policy guidance until 2017, when the company expects the Canadian project to start contributing to its cash flows."
"The rating also reflects that the Legacy greenfield project entails significant execution risks," the ratings agency added.
Potash price outlook
The comments follow the turmoil in the potash market, which has infected other fertilizer sectors, since Uralkali in July broke up the Belarusian Potash Company cartel, responsible for more than 40% of global trade in the nutrient, a break-up which provoked ideas of a tumble in prices of the nutrient.
Moody's said it was assuming a drop in potash prices, which stood at some $400 a tonne before BPC was dismantled, to about $350 a tonne, "with some downside risk to pricing levels in 2014".
Its comments came hours after Mosaic, the US-based fertilizer giant, forecast that its average potash sales price could drop below $300 a tonne in the current quarter for the first time in years, and talked of "cautious" buying behaviour backed late on Tuesday by Canada's Agrium.
'Fundamentals remain challenging'
"Significant uncertainty" in potash markets was "leading to reduced prices and cautious purchasing behaviour that has extended into the fourth [October-to-December] quarter in most international markets", Agrium said.
"Global potash fundamentals remain challenging entering the fourth quarter," the company added, citing "elevated inventories", with North American potash stocks ending September at some 2.7m tonnes, 42% above the five-year average, according to industry data.
Agrium also heighted forecasts that the pace of Brazilian potash imports, which have been a major support to the market, "may decline, given an expected reduction in the size of the second corn crop which is planted in January".
The decline in world corn prices is expected to provoke a sharp retreat in sowings of second, or safrinha, crop, which has grown to produce more than the main crop, and is the key source of Brazilian corn export supplies.
And, with corn a nutrient hungry crop, this dynamic is expected to affect nitrogen and phosphate markets too.
Agrium forecast that its earnings would reach $0.80-1.25 a share in the current quarter, well below market expectations of a $1.51-a-share result.
The guidance came as the group unveiled a 41% drop to $76m in earnings for the July-to-September period, equivalent to $0.50 a share excluding one-off effects, below Wall Street forecasts of a $0.57-a-share result.
The decline reflected outages at two Canadian nitrogen plants, Carseland and Redwater, besides "slower market demand" which fostered price declines of all major nutrients.
Via Stéphane Bisaillon