The Wall government's third-quarter budget update, released Feb.29, banks on increased potash sales to partially offset lost revenue due to weak potash prices. Only four days before the budget update, Saskatchewan’s largest potash producer announced it would cut its annual production by 400,000 tonnes.
PotashCorp indicated on Feb. 25 that it would be halting production at two of its Saskatchewan mines for a period of four weeks. The 400,000-tonne reduction represents more than four per cent of its anticipated shipping volume for 2016. In a press release, the company cites “inventory adjustments” as the reason for the shutdowns.
“Rather than produce more potash and build our inventories, we’ll deal with existing sales from existing inventory,” said Randy Burton, director of public relations and communications for PotashCorp.
“This is a slow period for potash, so there’s no point in producing more when the market doesn’t need it. Our strategy is to try to match production – supply, if you like – to market demand.”
The third-quarter budget update indicates revenue from non-renewable resources is suffering badly from the slump in oil prices. Current forecasts project annual oil revenue to be $554.8, down $347.9 million since the initial budget.
As natural resources go, oil revenue is now ranked second to potash, which is forecast at $651.8 million, down $144.2 million since the initial budget.
“We don’t anticipate layoffs at this time, but we can’t make any guarantees because we have to respond to whatever the market gives us,” said Randy Burton.
This statement holds true to PotashCorp’s 2015 Annual Integrated Report, which tells shareholders, “While we enter the year with a more tempered pricing environment, we stand ready to respond to whatever conditions ultimately transpire.”
As for PotashCorp’s inventory adjustment, John Burton (not related to Randy Burton), author of the book Potash: An Inside Account of Saskatchewan's Pink Gold,and a former member of PotashCorp’s board of directors, said that the company is just rephrasing reality.
“It’s a fancy term, with which they’re trying to take the edge off of what they’re doing,” said John Burton.
“They’re cutting down on production, and that could occur under any circumstance, but let’s be honest. That’s what it’s all about. They try and use a fancy term like (inventory adjustment) to try to downplay the pressure that may be placed on them to change their course of action.”
The author said that since the province placed the reins of the potash industry into private hands, the public has less control over the economic flux created by commodity markets.
“When I was on the board of directors of the publicly-owned Potash Corporation of Saskatchewan, one of our objectives was to bring about a greater degree of stability in the industry. That is in contrast to what the privately-owned industry is doing,” said John Burton.
“They’re out to get the greatest amount of bucks that they can at any particular time. That results in a great deal of instability in the industry - ups and downs that have detrimental effects for all concerned.”
The downs John Burton is talking about have come at an inopportune time for Saskatchewan, the world’s largest producer of potash.
While the potash industry caters to shareholders, the province is left in an uncertain position as it faces the current $427 million deficit.