Bad news keeps piling up for Potash Corporation of Saskatchewan Inc. (TSX:POT)(NYSE:POT).

If the company’s dismal fourth-quarter numbers and guidance for 2016 weren’t enough to scare investors, analyst firm Macquarie has rated Potash Corporation stock as “underperform” in its latest report, slashing its price target to $20 for the next 12 months.

That represents a downside of nearly 19% from current prices and is a multi-year low for the stock. Macquarie sees “significant headwinds” for the fertilizer giant going forward and doesn’t agree with some of the company’s optimistic forecasts.

Here’s what you need to know.

Potash shipments could drop significantly

Major potash producers, including Potash Corporation and Mosaic, are upbeat about the markets and expect global potash shipments to pick up this year. For instance, Potash Corporation projects shipments to be 59-62 million tonnes, in line with 2015 levels of 60 million tonnes, which was also the second-highest level ever.

Macquarie, however, foresees global demand for the nutrient to be only around 55 million tonnes this year as currency headwinds, low crop prices and farm income, and uncertainty in China continue to plague the industry. Lower demand would be a huge blow to Potash Corporation at a time when potash prices are showing no signs of a recovery yet. In fact, Macquarie has an equally morbid outlook for prices.

China: A major challenge

As the world’s largest potash consumer and importer, China sets the benchmark prices that potash producers can fetch from their worldwide contracts. Last year China paid US$315 per tonne of potash. For 2016, Potash Corporation expects China to negotiate around the current spot prices in Southeast Asia, which are about US$278 per tonne. Analysts at Macquarie expect China to settle for a price between US$270 and US$280 per tonne.

But Macquarie is also cautious about the falling Southeast Asian prices and believes that China could negotiate “materially lower” as spot prices have breached the nation’s last contract price. That’s a valid concern as the ball is in China’s court, partly because it entered 2016 with a large potash inventory and already appears to be delaying negotiations for this year’s potash purchases.

A risky bet for investors

While Potash Corporation is trying hard to balance industry demand and supply by curtailing production at several of its plants, China holds the key to where the company’s profits head from here. Investors should remain cautious, because delayed contracts could mean lower-than-expected sales volumes and prices, which will be a double whammy for the already struggling fertilizer giant.

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