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Potash Corporation of Saskatchewan (POT)Stock (Nonmetallic Mineral Mining Industry)
 The world's growing appetite for fuel and food have both led to an increase in demand for POT's products. Developing countries like China and India have experienced both rapid population growth and economic growth-- the growth of the middle class in developing countries increases their appetite for more grain intensive foods like meat. The use of ethanol as a gasoline additive has led to the planting of a record amount of corn[5]. Ironically, the economic growth in developing countries has also meant the destruction of arable land that grows key crops like corn, grain , and sugarcane, as cities expand and farmlands are converted for industrial use, forcing farmers to use more fertilizer in order to maximize the crop yields.[6] As of late July, workers at three of the company's mines were threatening to strike. These mines account for 30% of its production capacity.[6]
[edit] Business OverviewPotash Corp sells its fertilizers and crop nutrients to three markets in over 50 countries:[3]
 [edit] Products
[edit] Trends and Forces[edit] Margin Expansion And Ability To Set PricesThe demand for fertilizer has skyrocketed as 75 million new mouths enter the population annually.[10]. By matching supply with demand, POT has been able to set its own prices and gain a significant margin on its nutrients. Supplying exactly as much as the market demands keeps prices up since there is a degree of scarcity. Increased margins and profitability are important to POT to pay down debt and reinvest in mines to increase capacity to meet increasing potash demand. The rising demand for its fertilizers and nutrients have caused average year-over-year selling prices to increase considerably. Selling prices for potash increased 162%, nitrogen increased 57%, and phosphates increased 135%.[6] Gross profits have been rapidly growing with price since POT has considerably less expenses today with mine upkeep, rather than towards the beginning of its business when it had to build its mines. Gross profits for potash and phosphate tripled[11][12], while nitrogen gross profits increased 30%.[11] Gross margins, a measure of profitability, was variable for POT's nutrients. Nitrogen gross margins remained the same over 2007 even though gross profit increased 30%[11] because of the 52% increase in natural-gas costs. However, phosphate gross margins increased approximately 12% despite ballooning costs for key products to make phosphate usable, like sulfur and ammonia[11], whose prices rose 249% and 42% year-over year, respectively.[11] [edit] Ethanol and BiofuelsThe demand for biofuels, like ethanol, is increasing as the search for alternative fuel sources continues. POT's fertilizer and nutrients are essential to grow corn, wheat, and sugarcane, key crops to produce ethanol. Ethanol in the U.S. is produced from corn, one of the most fertilizer and nitrogen intensive crops[6]. The rise in demand for biofuels, food, and feed for livestock has pressured farmers to plant a record amount of corn, which is now being grown on approximately 90 million acres in the U.S.[6] The increase in demand also caused corn prices to jump approximately 125% from January 2007 to 2008[13] In addition, POT has gained more pricing power as corn acreage continues to increase since its fertilizers and nutrients are essential for crops, like corn. The increase in corn prices reflect POT's price increases. Brazil, one of POT's major customers, is the largest producer of ethanol worldwide and produces its ethanol from sugarcane. Together, Brazil and China import approximately 80% of POT's potash supply.[14] POT's potash production and sales increased 31% over 2007,[15] and Brazil, China, and India still have a lot of fertilizer use potential since they would need to at least double the amount of fertilizer to match already developed agricultural markets[6] [edit] Reduction in Arable LandThe amount of arable land worldwide is dwindling. The population boom has cut the amount of arable land per person in half over the past 50 years.[6] Brazil, China, and India are three of the five most populous countries and are trying to meet the growing demand for food, fuel, and feed for livestock. Brazil, China, and India each have just 7%, 15%, and 49% of arable farmland, respectively,[16] and with their respective populations on the rise, these countries need to make the most of the arable land they have. In addition, weather factors such as temperature, rain, floods, droughts, and hurricanes destroy arable land for a particular crop season and many times the land is unusable for a few seasons. A bad crop season for any reason decreases the demand for POT's fertilizers and nutrients. [edit] CompetitionPotash Corp has few competitors since the fertilizer industry has significant barriers to entry, or obstacles that prevent new competitors from entering the industry. Potash Corp estimates that it would cost upwards of $2.5B for a new company to enter the industry.[4] A company would need five to seven years of development time to build mines and factories, build rail and gas lines, and purchase rail cars and storage before it can even begin making a profit. Potash Corp has two main competitors: .
Although Potash Corp and its competitors have similar revenues, POT's ability to set favorable prices by controlling the limited supply of potash have set it ahead of its competitors in terms of net income and margins. In addition, it also competes with private, government owned companies. Government owned companies are not usually profit driven. Government owned companies can set their prices below market value to help subsidize their farmers costs and would force the other companies in the industry to lower their prices too, or face losing their customers.
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