Potash Prices In The Pits – US-FOREX.US
With potash prices coming back down to earth, shares of potash producers also appear more grounded. But analysts warn against jumping into the fertile sector since prices may have further to fall. Shares of potash producers Potash
and Intrepid Potash
were uprooted during Monday’s trading session as the market absorbed industry reports that the Russian producer Silvinit
agreed to sell Indian buyers 850,000 metric tons of potash through March 31, 2010 at 460 per metric ton-more than 25% lower than last year’s contract. Defying the market expectations that a significant period of slowed global consumption, declining Indian inventories and an anticipated future pick-up in global demand would have placed the bargaining power firmly on the side of potash producers, Indian buyers secured a contract price that was roughly 20% lower than the high end of some of the market’s contract price projections. With more contracts yet to be settled-the Indian Potash Limited contract is expected to greatly influence the negotiations. “This is a large volume contract between a major seller and large buyer, we thus believe this would likely establish the market floor price and set the range for Chinese buyers,” said UBS analyst Joe Dewhurst.Soleil Equity Research analyst Mark Gulley said the recent contract activity in India could result in remaining Indian and Chinese contracts settling down by 100 to 150 per metric ton.
The news prompted a rash of downward revisions to potash producers’ 2010 earnings on account of lower expected potash prices. RBC Capital Markets analyst Fai Lee now expects Intrepid Potash to report a 2010 profit of 1.97 a share, from 2.36 a share previously and lowered her price target to 29 from 36. Lee projects a 2010 profit of 9.77 a share, down from 10.90 for Potash and lowered her price target to 100, from 120. Regarding Intrepid and Potash, Lee considers current valuations attractive for the long-term but expects gains of potash producers’ shares to be limited until potash prices firm up, making them an unappealing short-term investment. “We don’t think potash is immune to further price pressure,” Gulley said. Potash shares shed 34 cents, or 0.4%, to 84.73 while Intrepid’s stock closed Monday’s trading session down by 50 cents, or 2.1%, at 22.98. Mosaic
and Agrium
, meanwhile, closed up by 3.2% and 2.0%, respectively, at 42.46 and 37.