Tuesday, August 20, 2013

Potash (T.POT) stocks hit again as India demands discounts

Shares of potash producers such as Potash Corp. of Saskatchewan Inc. (TSX: T.POT, Stock Forum) (NYSE: POT, Stock Forum), Agrium Inc. (TSX: T.AGU, Stock Forum), and Mosaic Company (NYSE: MOS, Stock Forum) were all lower last week after the Wall Street Journal reported that Indian potash buyers are demanding discounts for the price of the key fertilizer ingredient.

On Monday, potash stocks continued to fall, with Potash easing 1.2% to $31.02, and Mosiac sliding 1.8% to $42.10. Agrium was almost unchanged, rising 0.01% to $88.86.

This development comes as the Russian miner Uralkali --- who shook up the sector’s cartel system last month --- ramps up production, threatening to send prices tumbling, notes Canaccord Genuity in a report.

The moves will further press shares of global potash miners who have already lost up to 20% of their stock market value, Canaccord said.

Late July, Uralkali announced that it was pulling out of Balarusian Potash Company (BPC) one of two sales partnerships that together control two thirds of the nearly $22 billion potash market. It said it would funnel sales through a Swiss operation instead.

Now, the company says it is hiking production to full capacity.

Indian buyers, the second biggest source of potash demand after China, say they are asking for steep discounts on current contracts and will demand lower prices going forward.

“We will certainly like to negotiate lower prices,’’ said P.S. Gahlaut, managing director of Indian Potash Corp., a big buyer. He was quoted in the Canaccord report.

“We have asked for a 12% discount.’’

For years, a majority of the world’s potash has been sold through two marketing groups. Belarusian Potash Co, included Uralkali and Belaruskali OAO, while Canpotex included the North American giants Potash Corp., Agrium, and Mosaic.

The two groups have set almost identical prices in major markets, in what some customers call a cartel similar to those that have dominated global oil and diamond markets.

A report by Reuters News Service said Belaruskali is ruling out returning to a joint trading venture with Uralkali on previous terms.

However, an official at one Vancouver-based potash company was skeptical about India’s ability to achieve its goal. “Everybody wants discounts,’’ said Mike Blady, vice-president, corporate communications at Pacific Potash Corp. (TSX: V.PP, Stock Forum). “The question is will they be able to get them.’’

Blady said he sees Uralkali’s move as a short term ploy to increase its market share and push higher cost producers out of the way. “They will raise their prices again, eventually,’’ he said.

“Meanwhile the outlook for the potash market remains strong.’’

It’s a view that is shared by officials at Passport Potash Inc. (TSX: V.PPI, Stock Forum), which has seen the value of its stock price fall to 11.5 cents this week from 26 cents in late March.

In a statement released last month, Passport Potash said that “regardless of the activities of potash producers big and small, the following fundamentals remain true:

The global population is expected to grow by approximately 300 to 400 million every five years.

As income growth in developing countries continues to rise, diets change and become more crop intensive.

Arable land is flat in absolute terms and falling per capita, and opportunities to increase arable land are limited.

Crop prices remain high by historical standards and supportive of robust demand for agricultural inputs, like potash.

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