Grains Oilseeds

[earthfarm]

POTASH: Potash strike could stoke hot fertilizer prices
Reuters
Thursday July 31 2008 (In U.S. dollars unless noted)
By Roberta Rampton

WINNIPEG, Manitoba, July 31 (Reuters) - Prices for potash fertilizer, which have surged with record grain markets, could climb higher still if a simmering labor dispute boils over into a full-blown strike at the world's largest producer of the nutrient.

Workers are in a legal strike position at three mines that last year produced about 30 percent of potash mined by Potash Corp of Saskatchewan . Their union has said they want a bigger share of the company's record profits.
The two sides are still negotiating, and there has been little discernible impact on the company's output to date. But a serious disruption would be felt around the world.
"If there was an extended strike which had a significant impact on production, this would probably result in a sharp jump in spot prices," said Barrie Bain, director of respected industry consultancy Fertecon Ltd, in an e-mail interview.

Potash miners have not been able to keep up with demand this year, selling out their supplies as the world struggles to produce enough grain for food, livestock feed, and biofuels.

The food shortage has sent grain prices to record highs, and fertilizer prices have followed suit.

Potash Corp reaped an average price close to $500 per tonne this year, according to estimates by J.P. Morgan analyst David Silver, almost triple the company's 2007 average price. Silver has projected next year's average price at $900 per tonne.

Potash Corp and others are expanding mines, and the rush is on to build new ones. But high costs and long lead times mean supplies will be tight for years.
"It won't be until 2012 or 2013 before potash prices peak," Bain said.

The boom has made Potash Corp the largest company on the Toronto Stock Exchange as measured by market capitalization, ahead of Canada's oil and gas producers, banks, and Research in Motion , the maker of the BlackBerry.

Potash shares were down about 1.6 percent at C$214.71 on Thursday. They have climbed more than 500 percent in two years, and most analysts believe they have more room to grow.

"The company's future earnings outlook has never looked better," wrote RBC Capital Markets analyst Fai Lee in a research report.

Those profits have emboldened its workers to ask for more. "Our job is to extract as much as we can from the employer when times are really, really good," said Stephen Hunt, a director of the United Steelworkers union, which represents the miners.

Analysts say the union thus far seems more keen on talking its way to a deal than forcing results by stopping output.
"They haven't been really boisterous about threatening" to cut production, said David Asbridge, economist with Doane Advisory Services in St. Louis.

That has minimized the effect of the labor uncertainty on the market. So has the timing. North American crops are still in the field and shipments are seasonally slow, Asbridge said.

"If (the dispute) drags on another month, six weeks, then we're going to get into a period where it could have more of an impact on prices," he said, noting U.S. farmers will apply potash to fields in fall to prepare for spring corn planting.

Farmers have no choice but to absorb any extra costs, said analyst David Riedel of Riedel Research Group.
"There's a lot of wringing of hands and gnashing of teeth at how high these prices are, but if you want to get more crops out of the ground, you have to pay the price," Riedel said.

If Potash Corp sees a short-lived work stoppage, higher prices will more than make up for the loss, analysts said. But they said the company will want to quickly get a deal to avoid missing out on too many sales at current lofty prices.

Its compromise may have an impact on costs across the sector, since labor contracts at its other mines and those owned by Canadian competitors begin to expire next year.
The company has said it does not want its labor costs to become a drag on its results, particularly when cyclical commodity markets may one day turn lower.

"Once you give, it's very hard to take it back," said an analyst who declined to be named, noting investors will closely watch the company's costs.

http://www.guardian.co.uk/business/feedarticle/7692112