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My name is Vivian Lewis. I was born to immigrant German Jewish refugee parents in New York, so I started out as a multilingual baby and won the American Association of Teachers of French prize for high school grads in my year. I went on to study European history, first at Harvard, where I was... More
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  • The Potash Cartel Lives In The West 0 comments
    Oct 16, 2013 2:29 PM

    *The western potash cartel (Canpotex) lives. Here is an upbeat assessment of the potash outlook from an expert, Wayne Brownlee, exec vp and CFO of Potash of Saskatchewan, who told a conference call Friday how he sees developments in companies in which POT has a stake, like Israel Chemicals (ISCHF). ISCHF rose in Sunday trading in Tel Aviv on the basis of this commentary. Over to Mr Brownlee:

    "A statement to keep my lawyers happy. Potash Corp. mines in Saskatchewan in New Brunswick, nitrogen facilities in United States, in Trinidad. Phosphate facilities in the United States and an equity interest in China, Chile, Israel and Jordan.

    "So, the industry is an oligopoly by definition. It will remain that way for the most part, despite definition. Still has significant barriers to entry, interesting when people talk about the impacts of Eurocali [ed: Uralkali is what he said.] ... One way or another, if there is a period of time where there's a lot more volume competition in the marketplace, ultimately pricing has to return to replacement cost economics, so it really is a question if there is a short-term duration, a different approach to marketplace ultimately it doesn't matter. You are still going to have to return to replacement cost economics, which are probably around $400 a tonne, so there is no panacea here in terms of cheap potash forever.

    "Crops around the world in pretty good shape.... Look out for the crop production in China. We are seeing a real weakness in wheat and corn production there. You are probably going to see a record corn imports in China over the next year or so. Fertilizer impact [is] still significant in all these crops.

    "Potash ...has been characterized by periods of rapid growth and then flat growth and then rapid growth and flat growth. I think what's interesting if you even - I know that people look at the volume over the last five years or so since 2008 and say well, it hasn't really grown and that's true, but the truth in the offshore market if you take India out, it's actually growing at 3.5% growing in many offshore marketplace. The other remarkable thing about that is it's probably grown at that rate with some of the highest potash prices that we have ever seen in the history of the business, which probably averaged somewhere between $400 and $500 a tonne, so pretty good growth on high prices. To the extent that there is some price elasticity in some of the developing markets, it should help us in terms of accelerated growth going forward.

    "Our growth opportunity. Obviously, we are still in the range of 9 million tonnes of sales this year. We will have the operational capability for 17 million tonnes by 2015 . I know people worry about the excess capacity in the world, but you need to start remember whose hands that excess capacity is in. You can see by this pie chart 42% is in our hands. Our Campotex [ed: Canpotex is what he said] entitlement has back up to 51% in the second half...

    "Our sustaining CapEx, when we get to it, is probably in the order of $750 million... With this incremental capacity, our cash cost will go down. We are now about $100 a tonne and we expect that we should be able to see about 25% reduction in cash cost as this capacity ramps up and also you are going to see some more immediate benefits the Campotex {ed: Canpotex] runs means that we haven't run in [higher costs mines. In future years we will] probably accelerate production at ...lower costs, so even without hitting 70 million tonnes of production, you will see our cash cost ramped up."

    [The corrected conference call transcription was produced and copyrighted by Seekingalpha.com.] Tonne which Mr. Brownlee uses stands for metric ton.

    Disclosure: I am long [[ISCHY.PK]].

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: ISCHF is the US ticker symbol for Israel Chemicals which I own.

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