Potash Heats Up: $1000 a Tonne? 50 comments
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Another very busy day....
Lost in yesterday's excitement was news that Canpotex [remember - that is an alliance of Potash (POT), Mosaic (MOS), and Agrium (AGU)] has raised spot prices for some Asian buyers to $1000/tonne. The Russians have joined as well.
Notice a trend I hope?
[Mar 27: Canpotex Potash Contracts Secured with India @ $625]
[Apr 2: Potash Makers Already Talking $750, up from $625]
[Apr 16: Chinese Agree to $576 Price Point for Potash]
[Apr 23: Potash Hits $1000 on Spot Market]
- Canpotex, the export marketing consortium for Canadian potash miners, has raised its spot price for some Asian buyers to $1,000 per tonne, an analyst at J.P. Morgan said on Wednesday.
- The new price is up 21 percent from current delivered values, and will take effect in the fourth quarter, David Silver wrote in a note to clients, quoting fertilizer industry consultant FMB Group Ltd.
- "We believe the rapid rise in offshore potash prices will put increase pressure on importers in India and China ahead of their upcoming negotiations for new supply contracts later this year," Silver wrote.
- Earlier on Wednesday, Belarussian Potash Company (BPC) said it sold 40,000 tonnes of potash to Sri Lanka at a record price of $1,050 per tonne. The BPC consortium exports the mineral for Russian miner Uralkali and Belaruskali, and had earlier hiked its spot prices to $1,000 per tonne, effective July.
- As of June, spot prices for potash exported from Canada had climbed about 200 percent from a year earlier, according to data from Potash Corp, the world's largest fertilizer company.
- Potash Corp said last week it would increase its U.S. prices by $250 per short tonne, which J.P. Morgan's Silver estimated would make the price $772 per short tonne, an increase of 48 percent.
- China, the world's largest potash importer, is paying about $660 per tonne (delivered) under a contract that expires later this year -- about triple its 2007 price -- and India, another major buyer, is paying $625 per tonne.
- Silver said he expected higher prices would boost earnings per share by $1.90 for Potash Corp, 90 cents to $1 for Mosaic, and 60 cents for Agrium.
For the few long time readers who were around last October - remember that
nasty sinkholein Russia? Well, it's
back at its old tricks again.
- An emergency rail link allowing Russian potash miner Silvinit [SILV.RTS] to deliver the in-demand soil nutrient is likely to close in the next few weeks under threat from an expanding sinkhole, a senior engineer said on Monday.
- Sergei Testov, chief engineer at a power station near the sinkhole, said the link could be disrupted for at least several weeks as the government considers options for a third rail spur to move potash from Silvinit's mine in the Ural mountains.
- "We will do everything we can to build the new rail line before the old one is closed," Testov, one of the lead engineers in the rail link construction program, told Reuters by telephone from Perm region. "It probably won't be a disruption of two or three months, but for two or three weeks we will probably need to disrupt it."
- Silvinit, which accounts for over 10 percent of global potash supply, reduced shipments of the soil nutrient last year after the collapse of a 50-year-old deposit owned by rival miner Uralkali opened up the sinkhole and cut its rail link.
- Canada's Potash Corp of Saskatchewan (POT), the world's largest potash miner, suspended new sales contracts temporarily in October on fears of a global shortage following the first disruption near the sinkhole.
- "The situation is keeping us in suspense, but we are sure a crisis can be averted," said Anton Subbotin, chief spokesman for Silvinit.
- The plant is only a few hundred metres from the sinkhole, a crater 300 metres in diameter and 70 metres deep. Both Testov and Subbotin said the hole was about 100 metres from the replacement rail link completed this year, and that it was spreading toward it. When it gets to within 75 metres, local safety officials would shut it down, they said.
- "The alternative is still only in the planning stages," the engineer said. "Once the government makes a decision, in the best case scenario I think we can build it in three months."
- At a tour of the power plant last week, Testov and plant director Alexei Maltsov said the sinkhole was expanding toward the rail line at about 10 metres per week -- meaning only two or three weeks remain before the line would need to be closed. But on Monday, Testov revised this estimate, saying the expansion of the sinkhole had slowed. He declined to give a more specific estimate.
Takeaways:
- It is unbelievable how so many people want to call the end of the commodities "bubble" - if oil falls or as the media says "plunges" over 2 days, they want to call the whole thing off. This literally has happened 4 times since last summer and each time it lasted 5-15 days, and in that time everyone says "gotcha" and then a month later the commodity stocks are screaming higher. Meanwhile the retail investor who listens to the pundits has panicked into the selloff. Shameful.
- Even if oil goes to $105, I am unclear how fertilizer = oil... but since I'm a simple person perhaps the supercomputers at the hedge funds could better explain it to me. I know, I know crude = wheat = nickel = corn = potash = iron = coal = sugar. It's all the same thing! It's all just "one big trade" so sell 'em off! Yep.
- In an ever increasing inflationary environment where inputs are causing pricing pressure we continue to seek the few sectors where the price increases passed from producers to their customers is at least keeping up with the cost pressures of their inputs. Fertilizer has remained one of those groups.
Disclosure: Long Potash, Mosaic in fund; long Mosaic in personal account
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Well, they are both selling as fast as they can and once again stealing your money. Add these upgrades to the 425 Canaccord one last week and what do you get? You get screwed for listening to these crooks while they steal your money. 3 upgrades, average PT of 390, and we are sitiing at 210. Who's shi-t--- who???
Analysts are stealing your money.
You asked:
"But what if the price holds for a while, plus or minus 10 - 15%? Won't that turn POT into a nice fat cash cow and they can use it to expand opperations leading to greater future volume & possibly gain market share (assuming management finds acceptable deals)?
Or they could pay out heafty dividends which would support the stock price to some extent."
All true. But once pricing moves as far above marginal cost as potash is now, the rational response is for producers to eagerly bring new capacity online as soon as possible. It takes years to bring new greenfield mines online, but once the consensus is overwhelming convinced pricing has peaked, I'd expect the stock will start a slow stready grinding down. That's been my experience with how cyclicals trade.
'09 estimates for POT have already doubled in the past 90 days. AFTER those estimates were raised, the sell side is now falling all over themselves to increase their price targets and ratings on the stock.
I don't like it. I'm very cautious.
If pricing hasn't peaked, then some hedge funds will sniff it out within the next few weeks and start buying again. I'll wait for the market action to tell me it's time to get long again.