The S&P/TSX composite index fell 87.29 points to 12,581.75 with pressure also coming from the mining group amid falling metal prices.
North American potash companies retreated after a Russian-based rival broke up a European marketing group and announced plans to run at full capacity. The move by OAO Uralkali signalled that potash prices will weaken considerably.
Chief executive officer Vladislav Baumgertner said the change in the company’s trading policy could take potash prices to less than US$300 a ton, which is at least 25 per cent below the current contract price for China.
"It is a new reality. It’s a dramatic change and departure in producer habit and discipline. It changes the dynamic in a pretty significant way," said Jean-Francois Dion, vice-president and portfolio adviser of Canadian equities at RBC Dominion Securities.
"It will be interesting to see whether or not... it actually helps balance the potash market which is still very well supplied."
Shares in the rival Canpotex potash marketing group closed off the worst levels of the session but PotashCorp of Saskatchewan (TSX:POT) the most active TSX stock, still plunged $6.24 or 16.04 per cent to $32.66 on very heavy volume of 27.4 million shares. Shares in Agrium (TSX:AGU) dropped $4.69 or five per cent to $89.15. In New York, Mosaic (NYSE:MOS) tumbled $9.40 or 17.67 per cent to US$43.81.
Meanwhile, the Canadian dollar fell 0.4 of a cent to 97.07 cents US as traders wondered how the major change in marketing the fertilizer will impact Canadian economic growth.
U.S. indexes were generally weak amid strong housing price data and weakening consumer confidence.
The Dow Jones industrial index slipped 1.38 points to 15,520.59, the Nasdaq gained 17.33 points to 3,616.47 while the S&P 500 index added 0.63 of a point to 1,685.96.
U.S. home prices jumped 12.2 per cent in May compared with a year ago, the biggest yearly gain since March 2006. The Standard & Poor’s/Case-Shiller 20-city home price index also surged 2.4 per cent in May from April, nearly matching the previous monthly gain of 2.6 per cent, the highest on record.
Meanwhile, the New York-based Conference Board’s index of U.S. consumer confidence came in at 80.3, down from 82.1 in June and below expectations for a reading of 81. Still, the index remains well above year-ago levels.
The base metals sector was also a weight on the TSX, down 1.6 per cent, while the September copper contract on the Nymex moved down seven cents to US$3.04 a pound. Teck Resources (TSX:TCK.B) fell 31 cents to C$24.39.
The mining sector has lost ground the last few days but is still up about eight per cent from the lows the component hit June 24 as traders bought up stocks that have been beaten down, reflecting lower commodity prices and reduced demand from the world's second biggest economy.
"The real driver for base metals in general is Chinese demand and what level of growth Chinese officials will consider to be tolerable is the key question here," said Dion.
"The real key factor would be better clarity around Chinese growth, I think that’s the only variable around here that is impacting sentiment around the whole space."
Turquoise Hill Resources (TSX:TRQ) fell 35 cents or eight per cent to $4.03 after hitting a new 52-week low of $3.99. The loss added to a drop of 20 per cent Monday after it said it’s expecting a delay in developing its Oyu Tolgoi copper project in Mongolia due to the government’s financing process. Turquoise Hill’s primary operation is its 66 per cent interest in the Oyu Tolgoi copper-gold-silver mine.
The December gold contract fell $4.80 to US$1,324.80 an ounce and the gold sector was off about one per cent. Barrick Gold Corp. (TSX:ABX) fell 37 cents to C$17.72.
The financials component fell 0.7 per cent as TD Bank Group (TSX:TD) said it expects recent severe flooding in Alberta and the Toronto area will cause a loss in its insurance business in the third quarter. It says TD Insurance faces an after-tax net loss of between $240 million to $290 million for the period, which includes the months of June and July. TD fell $1.64 to C$87.25.
The energy sector was slightly higher with Imperial Oil (TSX:IMO) ahead 74 cents to $44.06. The September crude contract fell $1.47 to US$103.08 a barrel as traders awaited key data later in the week, including the latest reading on U.S. economic growth and job creation.
Traders also waited for the U.S. Federal Reserve to give its latest appraisal of the U.S. economy and whether a change to the central bank’s stimulus strategy is warranted. Fed officials are meeting again on Wednesday in Washington.
The Fed has been buying $85 billion of financial assets a month, a move that has kept long-term borrowing rates low and fuelled a rally on stock markets. However, the Fed is widely expected to wind down the program later this year if the economy improves.