Potash plunge will 'hurt' province, expert says

An expert on resource revenues says a sharp drop in the price of potash will have an effect on Saskatchewan's economy.
University of Calgary professor Jack Mintz talks about provincial resource revenues and the price of potash. 2:24

An expert on resource revenues says a sharp drop in the price of potash will have an effect on Saskatchewan's economy.

"Oh, it's going to hurt Saskatchewan no doubt," Jack Mintz, a professor at the University of Calgary told CBC News Tuesday. "I mean, any significant losses in potash sales is going to have a major impact in royalty collections, which are basically based on sales and how much profits are earned by the industry."

Shares of major North American potash producers fell sharply Tuesday on word that a Russian company was pulling out of a marketing group and is expected to undercut competitors' prices for the fertilizer. OAO Uralkali announced it was withdrawing from a joint venture with another company from Belarus that set the price for about a third of the world's potash supply. Instead, it plans to sell more potash to China, which buys about one fifth of the world's supply of the fertilizer.

The Saskatchewan government said Tuesday that it is too soon to judge the impact of moves.

"It is too soon to know the potential impact of today's announcement by OAO Uralkali on price, production and provincial potash revenues here in Saskatchewan," officials said in a news release. " We will be monitoring these developments closely and speaking with Saskatchewan potash producers to gain a better understanding of the potential impact."

Saskatchewan officials also said an upcoming financial report, in August, will take into account any potential impacts on government revenues.

According to figures from Saskatchewan's 2013-2014 budget, potash royalties were expected to generate revenues of $520 million. On overall revenues of $11.6 billion, that represents about 4.5 per cent of the provincial budget.

Patricia Mohr, an analyst with Scotiabank, said if potash prices fall there will be a ripple effect.

"Profitability will be reduced," she said. "Probably provincial royalty revenue, unfortunately reduced a little. And new greenfield projects put on hold."

Potash companies in Saskatchewan have been developing new projects, which have created many jobs.

An economist at the University of Saskatchewan noted that potash companies had been rolling back their production forecasts recently.

"I think we were living in a period of euphoria," Peter Phillips told CBC News Tuesday. "I think we thought this was a straight line development where everything would grow. Most of the major operators were talking about bringing on major new capacity."

Workers at Saskatchewan's potash mines are expressing concern, as their union, the United Steelworkers, braces for slowdowns and the possibility of short-term layoffs.

Potash is a major fertilizer used by farmers worldwide. It had been selling for almost $400 per ton. Some analysts believe the price could fall below $300 now.

With fiels from CBC's David Shield and The Canadian Press