Saskatchewan brokers are holding their breath on fears the province could see economic growth halved if potash prices sink in the wake of one producer’s move.
“There are so many people who rely on the potash industry for a job,” says Andrew Anindo, principal broker at The Mortgage Centre, Power Mortgage in Regina, Saskatchewan. “In my book of clients, I would say 15 to 18 per cent are directly involved in the potash industry – if that should slow down, that would certainly have an effect for sure. But we don’t know yet – it is only speculation.”
Uralkali, one of the world’s largest potash producers, announced Tuesday that it will end its export sales through the Belarusian Potash Company and direct all export volumes through its own Uralkali Trading. This was taken as a sign that Uralkali will be able to drive down the price of potash by as much as 25 per cent, affecting rival producers in North America.
The possibility of a major price drop has led to massive drops in the stock price of PotashCorp., Mosaic and Agrium – companies with major potash operations in Saskatchewan. And it was the growth of the potash mining industry that drew an influx of people to Saskatchewan for jobs, says Anindo.
“People began moving here in large numbers with all of the job growth,” Anindo told MortgageBrokerNews.ca. “In the last five or six years, our income as brokers has almost doubled as housing prices have gone up. I’ve been in the business for 15 years, and I can say that we are doing the same job as before, but with double the income.”
Potash is the main ingredient used in fertilizers to promote crop growth and is a key component of Saskatchewan’s economy.
Paul Ferley, the assistant chief economist at the Royal Bank
of Canada, told Canadian Press that the potash sector “has in the past had a material impact on growth and that can be the case again for 2013.” But, he added, a potential double-digit decline in potash production over the remainder of the year could reduce Saskatchewan’s growth by a full percentage point, and additional reductions in capital spending on the potash sector – coupled with a five per cent decline in construction spending – could reduce GDP growth by a further half-a-percentage point.
“The combination of both of those would subtract a percentage point and a half from our current forecast of 2.9, so it suggests a halving of the growth rate,” said Ferley.