The Potash industry is not faring very well these days. The biggest Potash mining company in the world lost 934 billion of its revenue in the past 12 months. Considering that Potash Corp. made roughly 1,27 billion in December 2015 as opposed to 336 million in the same month of 2016.
Potash Corporation Stock Prices– Past 5 Years by flor.bonneville on TradingView.com
This substantial loss of revenue sounds alarming. More than 400 people lost their jobs at Potash Corp in 2016. Many are worried about the potash industry in Canada.
However, the trend seems to be constant throughout the whole potash mining industry.
When companies experience losses of capital, the first question to ask is whether the reason for the loss comes from inside the company. That is to say: “Was there a strike?” or “Did the company lose a major client?” If the answer to one or the two of these questions is yes, then there is an internal reason for the loss of money.
Professor Shantanu Dutta teaches finance at the University of Ottawa. He says that in the case of Potash Corp, an internal reason for the plummeting of net income does not apply. “This is probably not internal”, he says.
Effectively, the company did not experience a strike in the past year, and it has not lost that many sales. Potash Corp lost 33 per cent of its sales in China from 2015 to 2016, but not because it lost a client, but because the demand was lesser.
The sales have not fluctuated much in the past three years. In fact, Potash Corp’s sales increased from 2015 to 2016.
The internal changes are not significant enough to create a 75% crash in the company’s revenue over twelve months. The sales have not fluctuated much in the past three years. In fact, Potash Corp’s domestic sales increased from 2015 to 2016 of 21%.
We thus have to turn to the external factors affecting the company.
The external factors one needs to consider when analyzing a company’s money loss are competitors increasing their own shares of the market and the cyclical turn of the market.
Journalist Ian McGugan of the Globe and Mail has written many stories about the potash industry. He says that the huge loss experienced by Potash Corp is “all about the plunging price of potash”. Indeed, the price of potash has crashed of half its value on the stock market within the past five years.
McGugan says that the plunge of the price of potash “reflects growing supply”. Which means that the top five markets bought more potash for the same price as in previous years, therefore decreasing their demand for the subsequent years.
All in all, things are not looking good for the potash industry in the coming years. BMO analyst Joel Jackson writes that “few expect better” in the potash industry. Jackson writes that the question is whether the market will crash even more in the coming years.
However finance expert Shantunu Dutta says that there are always fluctuations in the natural resources market, because sales can only go so far when the market is driven by nature. It’s a cause and effect chain– if crops aren’t good for the top five market, then the demands will not be so high. Or alternatively, if crops are doing good and clients buy a lot of potash, then those clients will have surplus for a long time.
“It’s a typical situation for the natural commodity industry”, Dutta says. Hopefully, we can expect the return of a healthy potash market in the coming ten years.
(To see the annotations that accompany this financial statement, please click on the “Notes” tab.)