As Agrium Increases Mine Capacity, Pricing Power Will Follow

One reason I like Mosaic (MOS) and Potash (POT) so much is due to the fact, of the three major nutrients in fertilizer, potash is the one that must be mined. And it's very expensive to add capacity - hence a wide moat - high barriers to entry and a lot of time/money to expand production. Eventually it will come, but it's going to take quite a bit of time. Looks like Agrium (AGU) the other major potash player is also looking to expand (in time).

• Canadian fertilizer company Agrium Inc (AGU) expects rising prices for potash leading into 2008, and hopes to expand production of the nutrient in coming years, its chief executive said on Tuesday.
• Agrium recently increased capacity at its Saskatchewan mine by 300,000 tonnes to 2.05 million tonnes, and is now working on engineering studies for another 800,000 tonne expansion.
• Calgary, Alberta-based Agrium will need up to a year to finalize plans and costs, with an eye to boosting production in 2010 at the earliest, Wilson told the conference.
• Wilson said he expected China, the world's largest potash consumer, to pay more for its supplies after upcoming price negotiations. "I see potash prices continuing to strengthen. China should be paying a minimum of $100 a tonne more, maybe even more given today's situation," he told Reuters. China paid about $100 to $150 a tonne less than other countries for the potash it imported in 2007. Some analysts have projected price increases of up to $150-$160 per tonne.
• "Who knows how it will play out, the Chinese may decide to be stubborn for a while and not buy for a couple of months. But at the end of the day they need potash and they'll have to accept a price increase," Wilson said in the interview.
• Agrium's shares have climbed since announcing a friendly takeover on Monday of UAP Holding Corp (UAPH) for $39 per share in cash, or $2.165 billion, even though Agrium plans to pay in part by issuing $1.25 billion in equity. The deal will make Agrium North America's largest seller of crop fertilizer, chemicals and seed. The retail expansion will help stabilize its earnings when prices for nitrogen, phosphate and potash fertilizers cycle lower, Wilson said.
• Booming potash prices will attract more players and production, despite high startup costs, he predicted. At these prices, people will come in and the price will fall, there's no doubt about that. But it's going to take quite a while for that to happen," he told the conference.

I've focused more on Mosaic and Potash because they are pure plays on fertilizer, whereas Agrium is a retailer as well in part of their business, but with this recent purchase, Agrium is doing a good job in consolidating power. Less players = more pricing power = good for corporations.

Long Mosaic, Potash in fund; long Mosaic in personal account