Mosaic (NYSE:MOS) said that it will idle its potash mine in Colonsay, Saskatchewan for the balance of 2016 and also halt current turnaround activities. The fertilizer maker is taking this action to meet customer demand amid challenging potash market conditions. Roughly 330 employees have received temporary layoff notices as a result of this move.
The Colonsay mine's proven production capacity is 2.6 million tons a year. Idling of the mine is part of Mosaic’s actions to cut production to cope with lower global potash demand and prices. It will allow the company to meet its customers' needs and reduce production costs.
Mosaic noted that its lower-cost Esterhazy and Belle Plaine mines coupled with existing inventory will enable it to meet its short-term potash supply requirements.
Mosaic’s shares closed around 3.5% higher at $27.41 yesterday.
Mosaic is exposed to a challenging pricing environment. Reduced potash and phosphate prices dragged down its profits in the first quarter of 2016.
Potash prices, which are already at their lowest levels since 2007, remain under pressure due to elevated supply. The potash market is expected to remain oversupplied in the near future, thereby hurting prices. Global capacity expansion and lower farm income continue to exert pressure on nutrient prices.
China (the world’s biggest potash importer) is also yet to sign potash supply agreements for 2016, leading to uncertainty in the global potash market and downward pressure on potash prices. This has also led to cautious buying patterns in other major consumer markets including India.
Moreover, a challenging currency environment coupled with economic weakness has contributed to a sluggish demand environment for potash across certain emerging markets. Depressed farm income is also unfavorably affecting nutrient purchasing decisions of farmers.
Mosaic is a Zacks Rank #5 (Strong Sell) stock.
Some better-ranked stocks in the basic materials space include Axiall Corporation (NYSE:AXLL) , Huntsman Corporation (NYSE:HUN) and Intrepid Potash, Inc. (NYSE:IPI) . While both Axiall and Huntsman sport a Zacks Rank #1 (Strong Buy), Intrepid Potash holds a Zacks Rank #2 (Buy).
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