CANPOTEX TAKES FISCALLY RESPONSIBLE APPROACH TO GROWTH
Coming off a year of volatility in the potash industry, Canpotex Limited, Canada’s premier potash exporter, is looking forward to 2017 with cautious optimism.
Canpotex is the world’s leading potash exporter, selling and delivering over 20 grades of high-quality potash exclusively into overseas markets on behalf of its three shareholders: Potash Corporation of Saskatchewan Inc., The Mosaic Company and Agrium Inc.
Ken Seitz, President and CEO of Canpotex, says the organization is on track to ship around 10 million tonnes of potash to overseas customers this year, slightly less than the previous year.
An oversupply of potash contributed to a precipitous drop in potash prices in 2016, which Seitz attributes to “new production that has come on stream and some new entrants into the market.”
Seitz added, “We also started the year with some higher inventory levels among many of our customers. They felt quite comfortable through a good portion of 2016, making purchasing somewhat discretionary through that period.”
As prices dropped, competition in the marketplace continued to intensify, added Seitz. “We’ve seen some fierce competition from places where currencies have devalued and therefore brought down domestic costs of production. We’ve seen that evolve over the year.”
Looking ahead to 2017, Seitz sees cause for optimism. “We continue to see growth on the demand side, with average annual growth rates of two to three per cent for potash around the planet. We continue to see strengthening on the demand side, complemented by countries like Brazil, where soybean prices are good. The currency there has been devalued, which is good for the farmer, given they are an exporting nation. India has had some strong monsoons. So we have some parts of the world where demand for potash is strong.”
Several supply-side events in 2016 are also reducing existing stockpiles of potash, he adds, citing the closure of PotashCorp’s New Brunswick potash mine, the six-month hiatus at Mosaic’s Colonsay operations, and technical issues at mines operated by Russian and Belarusian producers. “With reduced supply, we anticipate an improved supplydemand balance than where we were at the start of this year,” said Seitz.
While the industry will continue to face turbulence in the short term, the long-term outlook for Saskatchewan potash is reassuring.
“The United Nations is forecasting that food demand is going to grow by 70 per cent by the year 2050. We look at our own projections and continue to see two to three per cent average annual growth in the demand for our own product,” said Seitz.
“Canpotex is a vital link in the pursuit of global food security, inspiring farmers in our export markets to grow and help nourish the world.”
Contributing to the steady growth in demand for potash is an increase in arable land in a number of countries, including Brazil. “In Brazil, given the nature of their soil, the Brazilians need a lot of potash to achieve food security and increase exports. It all lends to this two to three per cent average annual growth rate that we’re seeing in our export markets,” said Seitz.
Other parts of the world are attempting to boost food production without the benefit of balanced fertilization. “They’re not achieving the right mix from an economic point of view of producing food and replenishing soil nutrients. We at Canpotex are always trying to educate and help farmers in our export markets to understand the benefits of balanced fertilization. There’s opportunity there to increase the demand for potash just by having farmers understand the benefits of balanced fertilization,” said Seitz.
Ultimately, said Seitz, the growing demand for potash will necessitate an increase in production. “The demand line is sloping up and to the right. We know that is going to continue and we know that it’s going to require more potash. That is where we get pretty excited about the fundamentals.”
It’s important to take a longterm view, said Seitz. “Canpotex has been doing this for over 40 years. Looking forward, there are potash resources in this province with a lifespan that extends thousands of years, so we’re going to be doing this for a very long time. We certainly have work to do navigating these near-term headwinds, but we do take a long-term view and that’s where we get quite excited.”
While optimistic about the future, Canpotex continues to take a cautious and responsible approach towards growth. That cautious attitude was reflected in the announcement made on June 17 that Canpotex would not be proceeding with its proposed $775 million potash export terminal in Prince Rupert, B.C., despite having made a substantial investment during the preliminary planning phases.
“Ultimately, we came to that conclusion, given the way we see the demand line growing in our business and given the highly efficient performance of our current port capacity, including the expansions we completed at our U.S. port facility. A new piece of information for us was the closure of PotashCorp’s New Brunswick operations, which liberated port capacity in Saint John. We looked at all of that information analytically and critically… and came to the conclusion that we have better options than deploying $775 million towards a large capital project in Prince Rupert,” said Seitz.
As one of Canada’s largest exporters, and the largest mineral exporter in the country, it is imperative for Canpotex to operate in the most efficient manner possible, added Seitz. “While I feel quite comfortable that Canpotex is a highly competitive organization as it relates to our costs, we can always do better. We will continue to scrutinize all aspects of our operation and ensure that we’re highly efficient.
“Moving 10 to 11 million tonnes of potash off the land-locked prairies is a monumental task, yet we do it. We do it with our 5,700 rail cars, we do it with our three port facilities, and we do it with our 235 vessel voyages a year. We just have to continue to ensure we’re competitive.”
In its 44-year history, Canpotex has succeeded in growing and maintaining a loyal customer base that spans the globe. “We operate in multiple foreign jurisdictions, with multiple languages and cultural differences. We have a highly experienced team that goes into those parts of the world and can be clear in our communications. We work very hard to ensure there’s a clear understanding between the customers and us. Once there is, they can rest easy, knowing that Canpotex is going to do what we say we are doing to do. That’s not true across our industry. It’s a distinct competitive advantage that we need to maintain,” said Seitz.
Global customers appreciate the high-quality product that comes out of Saskatchewan, he adds. “You can go to other parts of the world where people are selling potash that is spiked with groundup bricks for example. When a customer of Canpotex looks at our product, they can see that it’s a beautiful Canadian high-quality product. That’s another competitive advantage for us, and given the quality of our shareholders, it’s one that we will continue to have.”
Seitz anticipates the potash industry will face growing complexity in the future, but feels Canpotex is well equipped to prevail over those challenges. “Our world is becoming more complex – whether it’s competition, foreign exchange, changing commodity prices, the flattening Chinese economy. Any organization that wants to compete in this environment needs to meet that complexity with growing sophistication. While we have a highly sophisticated organization here at Canpotex, there’s always more that can be done,” said Seitz.
“We want to ensure that our decisions are always being made with the best available information, which means critically looking at our intelligence in the market and the data we have available to us… making sure that we have the skills to properly analyze that intelligence and ensuring that we’re making the best decisions for the benefit of our shareholders at all time.”
Moving 10 to 11 million tonnes of potash off the land-locked prairies is a monumental task, yet we do it. We do it with our 5,700 rail cars, we do it with our three port facilities, and we do it with our 235 vessel voyages a year. We just have to continue to ensure we’re competitive.”