Shares of Saskatoon-based PotashCorp. and other major North American potash producers are plummeting in New York this morning on fears that Russian fertilizer giant Uralkali could push down global potash prices.
Are there meaningful implications for the Canadian economy?
Yes, according to CIBC’s Avery Shenfeld:
To give a sense of scale, potash production is a bit under a half percent of Canadian GDP, and represents about 1½% of Canadian goods exports. A drop of 25% in volumes in Q3 (not unreasonable, and it could in fact be 30-40%), associated with production being curtailed as buyers sit and wait for lower prices, would therefore entail a drop of about 0.1% in real GDP, or roughly 0.4% at annual rates. Our sector analyst expects volumes (not prices) to rebound in Q4 as the lower prices will bring the buyers out to complete contracts. These are “back of the envelope” type figures, but give a sense that potash volume swings can indeed have a meaningful, if not massive, impact on Canadian quarterly GDP data, as they did in the latter half of 2012.