Time To Stock Up On Potash – US-FOREX.US
Sales of potash, a key crop nutrient, have been slow since the beginning of the year, but not due to lack of demand. Farmers have been burning through supplies in hopes that prices will come down, and one analyst expects a potash sales surge as farmers replenish inventories.On Monday,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. The news defied 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. The contract price secured by Indian buyers 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’ 2009 and 2010 earnings on account of lower expected potash prices. On Tuesday UBS analyst Don Carson lowered his 2009 profit forecast for Potash
to 4.55, from 6.20, and slashed his 2010 expectations to 8.30, from 10.50. He cut his 2010 estimate for Mosaic
by 23%, to 3.15, and now expects Intrepid Potash
to have 2009 and 2010 earnings that are roughly 20% lower at 1.45 and 2.20, respectively.
Carson maintained “buy” ratings on the companies and said the “lower potash market price should unleash considerable pent-up demand, initially from overseas buyers and then from domestic buyers beginning this fall.” According to his estimates, global purchases have been running 25% to 35% below last year’s levels. On Monday RBC Capital Markets analyst Fai Lee said she 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. On Tuesday, Potash shares continued their decline, shedding 60 cents, or 0.7%, to 37.14, while shares of Mosaic and Intrepid Potash closed higher, up by 1.8% and 1.6%, respectively. Agrium
shares also closed Tuesday’s session ahead, by 37 cents, or 1.6%, at 23.35.