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Fundamentals still favor potash stocks

|Includes: BHP, IPI, MOS, NTR, Nutrien Ltd. (NTR)

Regional brokers now believe potash could be worth over $500 a ton by 2015 as demand from Asia expands. This is naturally supportive for POT and the rest of the group. Australia and New Zealand Banking Group issued a note alerting clients to the prospect that potash -- a key component of high-yield fertilizers -- could hop 56% from its currently depressed $320 a ton over the next five years.

With no new potash supplies coming online before that point, rising demand from China and India could give producers like POT significant pricing power in the next few years. If so, POT is almost certainly worth more than the $130 a share that miner BHP Billiton BHP has offered to buy the company outright.

This is also good news for smaller producers: MOS, AGU, IPI and the rest. This is why we have been so active in alerting investors to the potash trade -- well ahead of the POT merger buzz. The underlying prices are going higher, the supply/demand dynamics are fine. Price increases are going through. Potash is king.


Sinochem still looking for a piece of POT


The gigantic Chinese chemical producer Sinochem is still looking for ways to get direct ownership of at least a strategic share of PotashCorp, the world’s biggest potash miner.

Sinochem has reportedly moved beyond simply consulting with HSBC to bring Deutsche Bank and Citigroup onto its advisory team as it prepares for a possible hostile bid for  POT.

China buys roughly 7% of POT’s output and has no major native potash supplies of its own.

Although Chinese interests have reportedly been directed to investigate ways to block or counter BHP Billiton’s BHP $39 billion offer for POT, a full rival bid may be unlikely. Canadian regulators have expressed doubts that they would allow the world’s leading potash deposits to go to a non-allied nation.

Disclosure: no positions