The world's largest potash producer by capacity has tapped a new chief executive with no fertilizer experience to replace a man whose name is synonymous with the word ‘potash' and conservative supply-side strategy.
Bill Doyle is stepping down as the head of PotashCorp (PCS), with Jochen Tilk named as his <a href="http://direct.argusmedia.com/newsandanalysis/article/898210">replacement</a> effective 1 July.
Doyle announced his resignation last week, having led the company for 15 years through prosperous and tumultuous times. Doyle leaves a legacy of strategic producer tactics, matching supply to demand to support potash prices.
Doyle's adherence to a price-over-volume marketing strategy brought needed orderliness to the market, according to industry sources.
"Bill really ushered in a form of supply and demand discipline to the industry, something it had very little of," American Plant Food vice president of sales Toby Hlavinka said. "He [dragged] the industry with him, some kicking and screaming. I think everybody in this industry is better off because Bill Doyle was in it."
Doyle, who has been at PCS for 27 years, oversaw significant price volatility for a crop nutrient that had historically seen relatively stable and low prices.
"He was such a huge figure in this world," Ameropa managing director Nick Adamchak said. "Bill was the consummate marketing guy."
From 1999 when Doyle was named chief executive through 2006, the average midpoint standard muriate of potash (MOP) price was $135/tonne (t) fob Vancouver, topping out at $183/t in February 2006.
A major price run-up began in 2007, spurred by record demand from China (9.4mn tonnes) and the asset bubble ahead of the 2008 financial crisis. Standard MOP prices reached as high as $875/t fob Vancouver by the end of 2008. By September 2009, prices tumbled by nearly half to $473/t as a result of the financial crisis.
PCS reacted by significantly cutting back potash production, producing 3.1mn tonnes of MOP in 2009, down from 7.5mn tonnes the previous year.
Potash prices fell further to the $340s/t fob Vancouver by 2010, the same year that Australian mining giant BHP Billiton made a $40bn hostile takeover bid for PCS. Doyle, with support of the Canadian government, successfully fought off the bid, which BHP Billiton withdrew in November 2010.
MOP prices recovered in 2011, with the average price holding at $483/t fob Vancouver from July 2011-April 2012. Since then, prices have steadily declined because of global oversupply and anemic demand.
The unexpected breakup of the exporting arrangement between Russia's Uralkali and Belarus' Belaruskali in July 2013 added considerable market uncertainty. Uralkali, one of PCS' chief competitors, switched to a volume-over-price marketing strategy, increasing supply and further depressing prices, which reached a low of $293/t fob Vancouver in February 2014.
The move challenged Doyle's long-held marketing philosophy. He publicly called the event "the single dumbest thing that I've ever seen."
With supply high and prices low, PCS again adjusted its operations in response. It cut its production rates to 58pc of capacity and laid off 18pc of its workforce—1,045 employees—in December 2013, citing price declines and weaker-than-expected demand. PCS produced 7.8mn tonnes of MOP in 2013, up 1mn tonnes from 2012 but down by 500,000 tonnes from 2011.
Amid these events, PCS carried out a large-scale expansion program to increase overall potash nameplate capacity to 18.1mn tonnes by 2015. It has completed expansion projects at its Allan, Cory, Lanigan and Patience Lake mines in Saskatchewan, while work at Rocanville and New Brunswick facilities is still underway. Despite the expansions, operational capacity for 2014 is 9mn tonnes because of reduced rates in an effort to match supply with demand.
With Tilk succeeding Doyle, PCS will join Agrium and Uralkali as potash producers that are under new leadership. Chuck Magro took over as Agrium president and chief executive in January 2014, replacing the retiring Mike Wilson who served in that position since 2003. Russia-based Uralkali named Dmitry Osipov its new chief executive in December 2013 and elected a new board of directors in March 2014 following a change in ownership.
A return to higher potash prices is uncertain, though they have stabilized over recent months, beginning with the settlement in January of Chinese first-half supply contracts at $305/t cfr that set a price floor.
Last week, Uralkali and Canpotex – the exporting arm of PCS, Mosaic and Agrium—settled separate supply contracts with Indian buyers at $322/t cfr. However, potash producers have said they do not expect India to return to peak demand levels because of the depreciation of the rupee and lowered government fertilizer subsidies. In 2008, India imported 5mn tonnes of MOP, but has imported less than 3mn tonnes in each of the last three years.
Spot markets have recovered with granular MOP barge prices reaching the $340s/st fob New Orleans in the US, up by more than $20/st since January. Granular MOP import prices in Brazil have climbed to $350/t cfr, an increase of $27/t since December.
Global oversupply will continue to be a concern for PCS, with multiple greenfield potash projects in the works. Two competitor projects are being developed in PCS' home territory of Saskatchewan by BHP Billiton (Jansen mine) and Germany's K+S (Legacy mine).
Without Doyle, it remains to be seen how PCS will approach these issues moving forward. But Tilk, who has 30 years' experience in the mining industry, has already suggested he might take a similar tack.
"PotashCorp has grown and benefitted enormously under Bill's leadership and the strategies that have created tremendous long-term value," Tilk said. "I share his philosophy for running the company and plan to build on this strong foundation."
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