Jul 24, 2014
Executives
Denita Stann – Vice President, Investor and Public Relations Jochen Tilk – President and CEO Wayne Brownlee – Executive Vice President and Chief Financial Officer David Delaney – Executive Vice President and Chief Operating Officer Stephen Dowdle – President of PCS Sales Joe Podwika – Senior Vice President and General Counsel Mike Sakia – President of PCS Potash Grace Scully – President of PCS Nitrogen Paul De Kock – President of PCS Phosphate
Analysts
Vincent Andrews - Morgan Stanley Jeff Zekauskas - JPMorgan Mark Connelly of CLSA P.J. Juvekar - Citi Chris Parkinson - Credit Suisse Ben Isaacson - Scotiabank Adam Samuelson - Goldman Sachs Joel Jackson - BMO Capital Markets Jacob Bout - CIBC Jonah Weisz - HSBC Bank Kevin McCarthy - Bank of America Greg Barnes - TD Securities Andrew Wong - RBC Capital Markets Mark Gulley - BGC Partners Don Carson - Susquehanna Financial Mike Piken - Cleveland Research Company
Operator
Good afternoon, ladies and gentlemen. Thank you for standing by.
Welcome to the PotashCorp Second Quarter Earnings Conference Call. At this time all call-in participants are in a listen-only mode.
Following the presentation, we will conduct a question-and-answer session. (Operator Instructions) If any call-in participant has difficulty hearing the conference, please press star-zero for operator assistance at any time.
I would like to remind everyone that this conference call is being recorded on Thursday, July 24th, at 1:00 p.m. eastern.
I will now turn the conference over to Denita Stann, vice president, investor and public relations. Please go ahead
Denita Stann
Thanks, [Sachi]. Good afternoon, everyone, and thank you for joining us today.
Welcome to our second quarter earnings call. In the room with us, we have Jochen Tilk, our President and CEO, Wayne Brownlee, our Executive Vice President and Chief Financial Officer; David Delaney, Executive Vice President and Chief Operating Officer; Stephen Dowdle, President of PCS Sales, Joe Podwika Senior Vice President and General Counsel, Mike Sakia, President of PCS Potash; Grace Scully, President of PCS Nitrogen and Paul De Kock, President of PCS Phosphate.
I’d like to welcome the media who are listening in and remind people that we are live on our website. I would also like to remind everyone that today’s call may include forward-looking statements.
These statements are given to us as of this date and involve risks and uncertainties. A number of factors or assumptions have been applied in the formulation of these statements and actual results could differ materially.
For additional information with respect to forward-looking statements, factors and assumptions, we direct you to our news release and our most recent Form 10-K. Also, today’s news release, which is posted on our website, includes a reconciliation of certain non-IFRS financial measures to their most directly comparable IFRS measures.
I’ll now turn the call over to Jochen for some comments and then we’ll go to questions.
Jochen Tilk
Thank you, Denita. Good afternoon and thank you for joining our call.
As you know we are here today to discuss our results and outlook for the balance of 2014. Before we jump in, I would like to acknowledge Bill Doyle from whom I took over in July 1st.
So first I like to thank him and I’m sure you’ll join me in this for his efforts and success in building this company into what it is today. And, I would also like to thank him personally for his continued support to his leadership transition.
I quickly did the math and estimated and had it confirmed by our team that Bill has been the voice over the last 59 earnings calls. So it’s probably important that I introduce myself so that you get used to this new voice and share with you some initial thoughts.
It is a great honor to join the PotashCorp team as President and CEO. This is a company that has in my view the best portfolio of assets in the industry and importantly tremendous potential to grow.
From my early interactions I know we have the first class management team focused on continuous improvement and a skilled workforce committed to serving our customers. It doesn’t take long to realize why PotashCorp has been successful in the past and how the platform we are building upon gives us the opportunity to succeed well into the future.
For those on the call that don’t know much about me, I’ve been in the resource [ph] sector for three decades. Nearly 25 of those years were in mid-mining and various leadership roles, most recently as CEO.
Throughout this time, I had the opportunity to lead different areas of the organization, I learnt first hand what it takes to drive performance and create shared value for all stakeholders. In any organization, there are a number of moving parts to manage, but experience has thought me that successful resource company boils down to few basic elements.
Being committed to safety and acting as a responsible steward of the company’s resources, continually seeking opportunities to optimize your competitive position and determining how best to leverage the company’s unique strengths. And interesting enough, it is the last item that I’ve been asked most about since I took the seat of CEO.
A lot of people know that the fertilizer business and particularly at Potash is unique. Geographic concentration of resources high barriers to entry and other dynamics have meant that the strategies to manage this business have also not been cookie cutter.
And I think it’s fair to say the strategies the company has deployed over the past 25 years have created tremendous value. I recognize the importance of leveraging this time tested formula; I believe it’s this long term approach that has positioned PotashCorp well for future growth while enabling it to successfully navigate to any market environment.
As a new leader it should come as no surprise that one of my priorities is to better understand PotashCorp and the many people associated with its continuing success that means I would spend my time over the coming months getting to know our customers, our investors, our employees and our community members. At the same time, my focus will be to work with my team to evaluate our business plans and look for opportunities to further enhance our position.
I can assure you that we will continue to take a thoughtful and measured approach to deliver on this company’s potential. Every path we pursue will aim to create long term sustainable value.
As noted earlier, I have a great foundation to build up on. Equally important, we have a market that is displaying signs of continued strength.
At $0.56 per share, our earnings for the quarter surpassed the upper end of our April guidance range; most notably we had better than anticipated results in Potash and Nitrogen. While other results have been lower than those of the previous year, we have been seeing a relative improvement to our business since the end of 2013.
In Potash, total shipments for the quarter in the first six months for the year have outpaced initial expectations and reached levels consistent with a robust 2013. Rail challenges begin to ease as the quarter progressed although steady customer demand kept distribution networks at full capacity and the back log with our order book.
Granular product availability remain especially tight leading to improved pricing levels throughout the quarter, particularly in Brazil and North America. To meet customer needs we do on flexibility within our production portfolio and increase granular capability at our New Brunswick and Lanigan operations.
Our Potash results were also aided by cost improvements, with per tonne operating cost reduced by over 10% compared to the same period last year. In Nitrogen, we delivered the second best gross margin total in our history.
Increased sales volumes continued to be the key driver of our performance in Nitrogen; the benefit of high production levels across our facilities resulted in a 12% increase in saleable tonnage and helped offset cost pressures from higher natural gas cost. Contributions from our phosphate business improved from a particularly challenging first quarter in 2014.
However, results like those of the comparative period last year on lower pricing reduced production levels and higher cost. Production in cost elements are factors which we can influence.
I know the team is working hard to achieve greater efficiencies at our operations. Additionally, depreciation charges relating to the closure of our Suwannee River chemical plant which resulted in approximately $28 million of charges against our per tonne operating cost are now largely behind us.
In addition to the contributions from each of our nutrients the completion of our share repurchase program enhanced our per share earnings. During the quarter, we repurchased another 17.5 million shares bringing our total to 43.3 million shares at an average price of $34 U.S.
per share. With our major capital expenditures winding down, I am committed to working with my team to sharply define our capital allocation priorities.
As our potential for free cash flow increases, we know our dividend will continue to be a core strategic element and we look forward to better articulating our thought process to run this and other possible opportunities. While 2014 has exceeded our expectation so far, as a company we must keep focused on what lies ahead.
We continue to see encouraging signs. In Potash, we anticipate global demand will remain relatively strong to the balance of the year and they will have improved confidence and visibility around second half shipments.
We see the potential of global Potash shipments to surpass the upper end of our previous guidance and have raised our full year estimate to a range of 56.5 to 58 million tonnes. Our summer-fill program in North America was well received and we anticipate a healthy fall application season as farmers focus on addressing new change shortfalls.
While the North America order book is the largest it has ever been heading into the second half securing supply in a tight granular market remains top of the mind for customers. Demand in Latin America has been extremely robust as the region imported Potash at a record pace to the first six months of the year.
While we expect Latin American demand could ease during the second half, all signs point to another record year. Type, supply demand for granular product has led to positive pricing trends in these markets, however in standard Potash markets conditions have been left supportive and prices have remained subdued.
In India, Potash deliveries against existing contracts began during the second quarter and are now expected to accelerate through the second half. We anticipate shipment levels will surpass 2013 providing a steadier demand profile for the balance of the year.
In China, potash demand has been more robust than previously anticipated with higher seaborne imports needed through the second half. We expect supply requirements will be largely met through exercising optimal tonnage terms on existing contracts.
This includes additional volumes from Canpotex to the balance of the year in accordance with its previously signed memorandum of understanding. In Southeast Asia, we see strong demand continuing and anticipate shipments this region will surpass 2013 levels.
As we move into the second half, we do so with significant supply commitments. Canpotex is sold out to the third quarter and we anticipate our operations will be apt or near full capability throughout the balance of the year.
With a strong first half now in the books and an improved outlook for shipments for the remaining two quarters, we have increased our 2014 potash sales volume guidance to 8.9 to 9.2 million tonnes. PotashCorp has and will continue to have flexibility in our potash portfolio to meet changing market demands.
As new capacity comes online at New Brunswick and Rocanville in the coming year, this flexibility would further enhanced. That said, we will continue to prudently manage our operations to ensure we strike the right balance between production flexibility and cost.
Our nitrogen business continues to contribute significantly into our bottom line, but we will likely see a small impact from Trinidad gas curtailments – our third quarter sales volumes total tonnage estimates for 2014 remain on track to exceed 2013 levels. With pricing for key nitrogen products finding better than expected support to the seasonally slow period, we have improved confidence in our 2014 earnings capability.
We now anticipate full year earnings in nitrogen will surpass 2013 levels. In phosphate, we see markets staying relatively firm to the second half.
We anticipate production rates improving as we execute against existing plans to implement efficiencies. We anticipate improved margin contribution for the remaining two quarters relative to that of the first six months of 2014.
Considering all these factors, we have increased our full year earnings guidance to between $1.70 and $1.90 per share, and provide an earnings range for the third quarter of $0.35 to $0.45. As always, there are – conditions that could impact this outlook and items that need to be watched as we move into 2015.
More recently, attention has turned to crop commodity markets and what another record harvest if its’ truly materializes means for fertilizer demand and pricing.
Denita Stann
Thank you. We’ll now go to questions.
Operator
(Operator Instructions). The first question is from Vincent Andrews - Morgan Stanley.
Please go ahead.
Vincent Andrews - Morgan Stanley
Good afternoon, thanks for taking my question. Just a question on the Brazilian market.
You know, you’ve had very good price momentum in that market this year they have obviously their demand is up substantially year-over-year. You reference that it – decelerates in the back of the year, but it sounds like you are looking to get price from about 350 now through to 360 and then the next thing I keep reading about is the idea of getting to $380 and I just trying to understand the level of confidence that you have in getting to that price particularly in the second half of the year if their shipments or their imports are going to decelerate.
Thank you.
Jochen Tilk
Thanks very much for your questions. I’ll let Stephen Dowdle to respond to that.
Stephen Dowdle
Yes, good morning, Vincent. In Brazil, we saw in the first half there was tremendous increase in potash imports into Brazil about 26% to 4.6 million tonnes.
And as we are now entering the peak shipping period to Brazil and we do see prices on the increase and it is our expectations that we will first see a 360 price being established which we believe is occurring right now. And, with regards to any further price increases that certainly will depend on both the supply and demand in the fourth quarter.
Operator
The next question is from Jeff Zekauskas of JPMorgan. Please go ahead.
Jeff Zekauskas – JPMorgan
Thanks very much, good afternoon. Jochen, PotashCorp has just completed a 5% share repurchase offer.
Would you support an additional 5% share repurchase for next year?
Jochen Tilk
Thanks very much for your question. So, yes we have completed the share buyback program and I think I like to respond to that in a broader way.
It’s obvious that with the completion of our capital projects at our mine site and assets we now are in a situation of greater cash flow and we are looking and revisiting what the best way if of allocating that cash flow and returning value to our shareholders. So rather than specifically commenting on any tool that we have available as you suggest during share buyback I like to say that we are looking at that, we are mindful of the situation and as I pointed out in my introductory comments that’s a priority for us and once we have developed and evolved in our thoughts then we’ll get back and respond to that more specifically.
Operator
The next question is from Mark Connelly of CLSA. Please go ahead.
Mark Connelly – CLSA
Thanks. Jochen, it was just a couple of quarters ago that Bill told us to get used to North American customers having the upper hand in negotiations because of the way inventories were working and consignment and all that.
Then we got rail, then we had a good season and now North American inventories are in pretty good shape. Do you see, does PotashCorp see those relationships starting to change?
Are retailers thinking differently about exiting the season with no inventory and that sort of thing?
Jochen Tilk
Yeah, I’ll let Stephen comment, who is really close to that interaction with customers.
Stephen Dowdle
Yes, Mark, we ended this fertilizer year with extremely low inventories. I just came from Southwest Fertilizer Conference and had several of our customers.
Many said, I’ve been in this business for 30 years, 40 years. I’ve never seen the pipeline so empty right now.
So that’s one reason why we look into the second half, and we know that we took a big summer fill book. Our customers are expecting a very, very strong fall demand season, and with such low inventories they know that we really need to focus on getting product in place to meet that demand.
So that’s the focus right now. And our view as we get through our fall demand, we’re really focus on completing the shipments for our summer fill, which we expect are going to take us into at least October.
And we also know that there are areas where fall demand is stronger than in other areas. And we are going to focus our deliveries into those areas where we know that this product will be going to the ground, and we don’t have the spare rail capacity to be putting product into areas where it’s not going to go to the ground.
So our expectations as we go out of this calendar year also with very low inventories.
Operator
The next question is from P.J. Juvekar of Citi.
Please go ahead.
P.J. Juvekar - Citi
Thank you. And welcome to PotashCorp.
My question is that given your background what are your thoughts on whether potash should be spot market or contract market? Can you just walk us through how do you think about the pluses and minuses of each situation?
Thank you.
Jochen Tilk
Yeah. Thanks very much and thanks for the welcome.
I think most commodity markets tend to be a combination of contract markets and spot markets and usually that’s a good balance, and if you ask me for view, I’d say, that’s what I think, and if you ask me what the practice is? I believe that is the practice.
So, it’s a combination of both and I think that works well.
Operator
The next question is from Chris Parkinson of Credit Suisse. Please go ahead.
Chris Parkinson - Credit Suisse
Can you give us a little color on your large volume guidance increase for North American? And then just within that, how much of this was demand-driven by crop rotation such as cotton and soy and also feed versus an expectation for our inventory restocking in the second half?
Thank you.
Jochen Tilk
Sure. Stephen, would you want to put some more input to that?
Stephen Dowdle
Chris, I think, I talked about the opportunity for inventory restocking. We really don’t see that that’s going to be an issue as we go into the New Year in 2015.
As far as what is propelled demand this fertilizer year and on this calendar year in 2014, it’s really been a combination of things. We certainly saw a large corn crop being planted.
We also have been talking about the state of application of potash and removal of potash and the fact that we have been mining our soils in North American number of years and these needs to be address. And it was partially addressed this year, that’s part of the rebound in demand.
Another aspect that sometimes overlooked is we have seen the feed market in the livestock sector rebound. And we saw a potash application of pasture ground this year.
And it’s been several years since we’ve seen that. So it’s really a combination of a lot of different factors, but certainly it was a very robust demand scenario in this past fertilizer year and continues through in this calendar year.
Operator
The next question is from Ben Isaacson of Scotiabank. Please go ahead.
Ben Isaacson - Scotiabank
Thank you very much. I’m just trying to figure out what the lessons are that we should be taking away from the strong first half.
You’ve talked a lot about North American, but not as much about the rest of the world. Is it that lower prices have really brought back volumes?
I mean, we haven’t always seen that to be the case. Or is that we’re really in a global restocking period for two, three quarters?
And the reason why I’m asking is, we have mixed data points between the standard and the granular markets. One of your competitors just lower their guidance by 8%, while you’re raising it, so I just wondering if you could comment on that?
Thank you.
Jochen Tilk
Yeah, Stephen will response to that as well.
Stephen Dowdle
Yes, Ben. We -- I think one comment you made about global restocking and that certainly is what we have seen.
We ended the calendar year in 2013 as you recall and actually it was just about a year ago that was a pretty significant upset in the potash market and globally this caused many buyers to just stand back and kind of watch developments and see what happen. So inventories have certainly drawn down during the fourth quarter of 2013 and potash prices reset during the same period.
And as we went into 2014, we saw people beginning to gain confidence that the storm would kind of passed and prices had reset, inventories were very, very low and people needed to get back to business and make sure that they had the potash that they need it. And of course China took the lead and settle very early in the year and India followed and Brazil knew that they were really going to be demanding a lot of potash this year and they got back to the market quite quickly.
So, Southeast Asia was also needing to build their stock for their commodity based markets. So everyone as what often happens in this market people’s behavior may make other people’s behavior and people came back to the market at the same time.
Operator
The next question is from Adam Samuelson of Goldman Sachs. Please go ahead.
Adam Samuelson - Goldman Sachs
Yeah, thanks. Good afternoon everyone.
Can you just discuss the confidence you have in the second half shipment outlook? I think you’ve alluded that the industry growing shipments globally by 10%.
Your own forecasts are up by 20% and 30%. Your Canpotex allocation year-on-year is up a little but not really changed much.
Is that just the U.S. being the fastest growth market in the world or is there something else to play in terms of Canpotex gaining market share that’s driving the confidence in the shipments?
Jochen Tilk
Yeah, Stephen.
Stephen Dowdle
As we look at the second half -- as we’ve indicated in our release here, we look at global shipments in that 56.5 million to 58 million tons range. So that is -- if it turns out to be the case as we approach 58 million tons.
That will be an all time record year for potash consumption. What we see and the reason why we do have confidence in this scenario and in these various markets is -- China is certainly engaged in the second half.
There is no question about that. India, those contracts are being executed and that’s going to carry forecasted demand in the second half.
And India has improved as a market year-over-year. And we certainly expect that this will be a record year in Brazil.
So we see that market working well. We talked about North American and some of the dynamics that are going on right now was and anticipated fall application demand that will be very robust.
And Southeast Asia, those markets responding to positive economics for their primary products. So as we look around the world, we see that demand is very solid and is going to be the basis of what potentially could be record year for global potash demand.
Operator
The next question is from Joel Jackson of BMO Capital Markets. Please go ahead.
Joel Jackson - BMO Capital Markets
Hi. Thank you much and welcome Jochen to the PotashCorp.
A couple of questions on China. So first part of the question is, what confidence do you have that Sinofert will take these extra tons under the MOU?
And then the second part is with Uralkali reducing rail shipments to China in the last couple of months. Is it your sense that your Uralkali is focusing on the Southeast Asian market and leaving Canpotex to have better volumes and a better net back market for the South China?
Thanks.
Jochen Tilk
Thanks very much Joel for the question. Stephen, you want to respond to the first part of it.
Stephen Dowdle
Sure. As far as China, it’s our understanding that Sinofert and CNA and PGC had buyer’s options on their contracts with other suppliers which they have exercised.
Canpotex and Sinofert had discussions and they have mutually agreed on additional volumes under the existing contracts, under the existing first half contracts. So we expect that Canpotex sales to Sinofert will be 1.2 million tons in this calendar year.
Of course, the total shipments of Canpotex to China will be higher as Canpotex will continue to support its other customers in China. And maybe respond with the second part.
Jochen Tilk
The second part was regarding Uralkali.
Stephen Dowdle
With regards to Uralkali rail shipments, of course, we don’t know what goes through the minds of Uralkali. We’ve seen periods of time when rail shipments have increased.
We’ve seen periods of times when they been lower. You can only speculate on what drives that and it could be rail rates availability.
Their market in China, obviously we don’t really know. But I think that what we do expect and its probably a important point is China as we look at maybe further ahead in 2015, 2016, we do expect that and we talked about the potential for growth in the China market and we do expect that we are going to see this growth.
When you look at over what’s happened in the last few years where the growth in China is maybe disappointed some of us. During this period China was really focused on growing their domestic capabilities and we believe that they’ve achieved just about all that they can do and any future growth on their domestic side is going to be much more incremental than it has been in the past five years.
And so therefore growth in china is going to be supported by imports, and these will primarily growth in Seaborne imports. And when you also consider that, well over half of potash in China is consumed in fruits and vegetables and you realize that the economic growth north of 7%.
This is really raising the standard of living and it’s raising the expectations of the population for better food, more food, higher quality food and of course fruits and vegetables play right into that. And we see that some of this demand is supported largely by the NPK sector and the NPK sector continues grow and we’ll continue to be a source of increased demand for seaborne potash shipments.
Operator
The next question is Jacob Bout of CIBC. Please go ahead.
Jacob Bout - CIBC
Good afternoon and welcome on aboard. Question here for Jochen, just given your background in mining and I think as a Mining Engineer.
Can you talk a little bit about what’s your focus will be, are we going to see more of a focus on costs? And I guess as well I know its early days, but how do you think your strategy or focus will be different than the direction Bill Doyle took?
Stephen Dowdle
Thanks Jacob and also thanks for the welcome. In terms of the relevance of background and how that plays out here.
I think when you look what we primarily do is we’re running mines and plants and we do that efficiently. We do it safely.
We look at opportunities how we can improve. We plan our mines and then we mine those plans and ensure that we meet our targets.
And those our qualities that I think are pretty constant with what I’ve been doing most of my career. So what you should expect in that regard is working with the team here, making sure that all the capital investments that have been made and mostly completely really come to fruition successfully that we apply our focus on how we run our mine, maintain the flexibility, but yet have the best cost profile that we can position ourselves in that and we are responsive to any technical opportunities that exist to make those improvements.
And that’s a steady process. That’s not radical change, because so much capacity and so much capability already exist in this company and experience so that those are opportunities that come over time and again with the support of the team.
In terms of the second question on how strategy would differ from my predecessor. So I think make that a broader statement in terms of the company strategy and the direction the company has been taking in the last 25 years.
And I think the first mark or a point I would make is the success that the strategy has demonstrated and the result of this strategy has delivered and this quarter clearly is a demonstration of how you can benefit from that formula. And so you’ll see is clearly that there is consistency, there is steadiness that there is certainly isn’t the radical change or deviation from that and its building on success of that strategy and any opportunities that we can see to make that better and evolving that and much of that will be based on growth into the future.
We’ll then find and we’ll evolve and then we’ll communicate that. And that will take some time from my perspective given that I strive that this July 1, but in time I look forward to having this chat and be able to say what we found and what we can do.
Operator
The next question is from Jonah Weisz of HSBC Bank. Please go ahead.
Jonah Weisz - HSBC Bank
Hi, and good afternoon. I’d like to ask some questions about what has been said on this call already about China.
Just to clarify, the fact that you’ve negotiated some additional options on your existing contract for first half. Does this mean that you have essentially given up on signing a second half contract with China?
And further with regards to sales and marketing strategy to China, is this perhaps can we interpret this as a soft transition perhaps of China to more of a spot market and that’s an issue and I do have been discussed in the past. And I guess finally, what gives you confidence that future demand for potash in China will be supplied by sea and not rail?
Thank you.
Jochen Tilk
Thanks very much. As a follow-up to the China question, Stephen.
Stephen Dowdle
Sure. Our expectation now for the second half is that there will not be a dedicated contract covering just the second half.
We believe that the shipments that has already been exercise the optional volume that’s already been exercise will cover most of the second half demand and we would expect that a new contract -- any new contract would be for deliveries that would basically be for the first half of 2015. And those -- sometimes in the past those deliveries have started in the fourth quarter of the preceding year, sometimes more recently they’ve commence during the first quarter of that calendar year.
We don’t really see that this is departure of China becoming a spot market. We think that the size of that market and the planning that’s needed to logistically get that product into the country and get it where it’s going to be utilized.
That requires a lot of planning and it’s very difficult to do that in a spot market environment. So we -- our expectation is that China will continue to be a contract market.
Operator
The next question is from Kevin McCarthy of Bank of America. Please go ahead.
Kevin McCarthy - Bank of America
Yes. Good afternoon and I’ll add my welcome to Jochen.
I just wondering if you might comment on why your outlook for nitrogen is more constructive today versus three months ago, as you’re indicating this morning that you would expect profit to exceed last year’s levels whereas the opposite was true in late April, and so I just wonder if you could walk us through what is driving that, is it energy related or demand driven or company’s specific in nature?
Jochen Tilk
Yeah, thanks very much Kevin and thanks for the welcome. Again, Steven, you respond to that.
Stephen Dowdle
Sure. The demand has been good, it’s been robust.
I think one of the industrial sectors has been strong. We’ve seen that in North American, it’s driven by favorable energy cost.
So our industrial business has been quite good. Fertilizer business has also been good.
We’ve seen growth in DEF so on the demand side it’s been good. I think that our outlook is perhaps little more rosy now than it was three months ago, because when you look in the world of nitrogen, you don’t have to look far to see trouble spots whether due to civil unrest or wars.
We see gas shortage in North Africa. We haven’t seen the amount of product come out of those markets that we had expected.
So overall there has been some supply constrains in an environment where demand has been quite strong.
Operator
The next question is from Greg Barnes of TD Securities. Please go ahead.
Greg Barnes - TD Securities
Yes, thank you. Good afternoon especially, Jochen, good to join up again.
The question really relates to looking forward a bit beyond 2014 which I think you’ve established as the pretty strong year. Do you see those trends continuing into 2015 and potash demand getting up towards that 60 million ton level globally?
Jochen Tilk
Yeah, thanks Greg and thank for the welcome. And as well good to hear your voice.
We don’t forecast beyond really the time period that you suggested and it will be very difficult for us to beyond that. I think as Steven has indicate a nice spoke about of the signs that we see and the strengthening in North American, the robustness of that market, international markets and a consistency to what extend that extrapolates that in the future has a level of uncertainty that we can’t predict and we don’t predict beyond.
But we meet the signs of that we’ve seen thus far this year and we quality them as positive and I think to be I would characterize our position right that would be cautiously optimistic taking in those facts and by being prudent and mindful of what markets – market changes in particular and volatility can do. Steven I don’t know if you want to add anything to that.
Stephen Dowdle
Yeah. Its very difficult for us to forecast – it’s too far into the future.
But I would maybe add that a lot of this in this business and in this potash market there is lot of psychology and right now there is momentum in this market and we just as we project forward we don’t see any serious headwind to kill this momentum.
Operator
The next question is from Andrew Wong, of RBC Capital Markets, please go ahead.
Andrew Wong - RBC Capital Markets
Hi. Thanks for taking my questions.
Can we be reminded of the ramp schedule for New Brunswick? And then with the target market being Brazil how does the additional products for New Brunswick fit into competitive landscape, is the plan to increase market share or for shipments to grow along with market growth?
Thank you.
Jochen Tilk
Thanks, Andrew for the question. First part on the ramp up of New Brunswick, David you want to respond to that.
David Delaney
Yes, Andrew, right now we have the facility down for summer maintenance. We will be starting back up in September with [indiscernible] have its first production in October.
Our anticipated ramp up in 2015 will be right around 750,000 tons and then we’ll go from there following year. The primary markets have historically been Brazil and Latin America, and we ramp up we will also consider the East Coast and Gulf Coast of the U.S.
which would be logistically the right fit for where its located.
Jochen Tilk
Thanks, David and I’ll it over to Stephen in a second, but just on the comment on the opportunity of New Brunswick, really that’s what the market will delivery. I mean clearly as David just pointed out we have logistical flexibility there and an opportunity and we have incremental capability and again that provide some opportunity for the Company.
Steven you want to talk more about.
Stephen Dowdle
And certainly Brazil will play into that. Brazil historically has been an important for New Brunswick production and we certainly see as Brazil market grows that New Brunswick will play an important role in supplying that growth.
After all New Brunswick has the shortest selling time to Brazil of any potash producer.
Operator
The next question is from Mark Gulley of BGC Partners. Please go ahead.
Mark Gulley - BGC Partners
Yes good afternoon. Given the fact that PotashCorp has a fair amount of idle capacity, how are you thinking about bringing that idle capacity back online?
Jochen Tilk
Yeah, I think again this is a question what the markets require and the company has been very prudent and how this capacity is implemented and is being ramped up, we just spoke about New Brunswick and Piccadilly which essentially is a new mine, and we spoke about the opportunity to deliver product to the east coast all the way to the south to Brazil and I think an important piece of fact that we have the shortest delivery time and a shorter sailing time to Brazil from that place. So whatever the markets will bring at that point in time, we are well positioned and as a ramp up of production to respond to that and we’ll see the benefit of it.
Operator
The next question is from Don Carson of Susquehanna Financial. Please go ahead.
Don Carson - Susquehanna Financial
Yes thank you. Jochen you know Potash has been a well run company and has a deep management bench yet you know the board you know went outside the company for the first time when they chose you and chose somebody from outside the Ag industry.
So, what changes instituted direction does that signal, again you talked about the need you got a lot of excess capacity, you know what should we expect along those lines. And then I know historically your predecessors here at potash first strategy but you know nitrogen outlook has improved both strategically and your own assets, so is that something that you might focus on is expanding your position in the nitrogen industry in North America?
Jochen Tilk
Yeah, thanks very much for the question. I think there are two parts to it.
Let me talk to the first part and on strategy and you know the fact that I’ve come from the outside and have a little bit of a different background which I still believe is quite consistent with the commodity industry which we are in. I think that really doesn’t send any signals other than that the board thought I was candidate for that position and you may reference to an outstanding management team and I do have the honor and pleasure that everyone by the way is here in this room today and supporting me and assisting me.
And, I’ve only been here for just about three weeks, but I can tell you that the expertise and support of that team has been outstanding, and the discussions that we had in taking this company forward were excellent. And the way I see then, and again consistent with what will our team, my team here has discussed is that we build on the strength that we have and its not a significant change in strategy, it’s a proven formula that’s worked really well in the past and the we extrapolate that into the future and we seek opportunity along that way.
And those opportunities will be formulated and it will be if appropriate if and when communicate and then we can talk about things a bit more specifically in the future. But that’s what you should expect rather than any radical changes.
In terms to the second part, which was the question whether or not we look in expanding in other areas such as nitrogen and phosphate, again, that’s a bit of a rather strategic question that requires us to look at opportunities to see whether or not we can expand in any of those areas and I would extrapolate at that point and essentially everything that we do and whether its an investment, whether it’s a capital expenditure, whether it’s a project that we’re evolving and we are looking at that from a point of disciplined approach, how much value can we create, what’s the best allocation of that capital, what’s the best return for shareholders. Those are the criteria and the criteria that you would expect that were used to make that evaluation.
And then as we come to any conclusion, we will communicate that on whether that’s an expansion or any sort of investment then we can be more specific at that point of time.
Denita Stann
Perhaps you will have time for just one more call.
Operator
Thank you. The next question is from Mike Piken of Cleveland Research Company.
Please go ahead.
Mike Piken - Cleveland Research Company
Yeah hi, just wanted to quickly go through some of the logistical challenges that many of your customers faced this season and whether you think that’s more structural in nature or a function of the weather or if there is just increased demand for rail from some other industries and how you plan to work with your customers to address those issues in the future?
Jochen Tilk
Well Stephen, would you want to put some input to that?
Stephen Dowdle
Well it’s both things you mentioned; demand has been very very strong in the rail industry. In fact we are back to you know pre crisis, you know 2007 levels.
We are moving so much more of crude shipments, fracking sand, the intermodal movement. And then, of course here more recently we had the unanticipated bumper grain harvest in Canada which resulted in the Canadian government ordering the rail roads to prioritize grain movements.
And all of these things have – and these are now the structural things have impacted the efficiency of rail movements. We have seen our cycle times increase on our rail movements and you know this has really been a logistical challenge for us.
Our ware house system really paid dividends during this past spring because we shipped fewer rail shipments and yet we increased our potash sales. So, that distribution network that we have built has really helped our situation in a great deal.
And you know of course during this time we had very severe winter which we are all grateful is in our history. And then as we got into the spring, we had some residual impact that resulting in flooding.
So even though the cold weather has left us, we still have reminders of the spring and that has impacted some rail movement here during this spring. But certainly we think that the weather issues are behind us however, we do think that some of the structural issues are going to be challenging here for the foreseeable future.
Denita Stann
Thank you very much everyone. We really appreciate your interest.
If you have any further questions, please don’t hesitate to give us a call at the office. Thank you.
Operator
Ladies and gentlemen, this concludes the conference call for today. Thank you for participating.
Please disconnect your lines.