Potash and Phosphate, Week in Review: A Challenge to Canpotex

During the trading week ending on October 19 the share prices for ProEdgeWire: Potash and Phosphate sponsors dropped, reflecting a decline in the share price for some of the major producers. Over the five trading days, the share price changed by -15.6% (between start of trading on October 15 and close of market on October 19). This week we also welcomed Allana Potash as our newest sponsor, one of the most promising new potash plays, focusing on a resource in Ethiopia as featured in an article published this week entitled “Allana Potash says it is on Target for Production to start in late 2014”. Allana (AAA.TO) started the week at CAD$ 0.56/share and ended at CAD$ 0.52 accounting for an 8.93% difference. The week’s highest mover was Potash Minerals (POK: AX) with a share price drop of 16.25%. The mineral fertilizer sector was especially concerned with issues of future demand and international agreements and the failure of farmers to renew orders in India. This outlook was then compounded by news of lower than expected sales by some of the North American potash giants such as PotashCorp (NYSE: POT) and Mosaic (NYSE: MOS), highlighting the increasingly global nature of this business both in sourcing and market reach.

PotashCorp, North America’s largest potash producer had predicted that potash demand would be growing in 2013, mostly because of Indian demand. However, issues related to Indian demand materializing over the past week have diminished confidence in the North American potash sector. There was a sense that the market was bearish this week over the commodities sector. Talks were held in Montreal this week to settle the pricing dispute between North American potash producers and Indian customers, neither one willing to make concessions on price, even though  food security is a top concern and will continue to be in the long term. In fact, the dispute is precisely over price. Indian officials complain that potash prices are too high and that farmers cannot afford them. They are demanding a 10% discount on spot sales. The Indian government was expected to offer farmers subsidies for mineral fertilizer purchases and, the negotiations may be signaling a new trend of increased government involvement in price talks. Chinese buyers are also delaying potash buying sprees. The big potash producers still hold most of the strings, but that could change once new potash plays start to come on line in the next few years.

Note that potash companies such as Aguia Resources and Allana Potash were less volatile as their resources are based outside of North America. The events of this week, therefore, suggest that large potash buyers will defer their purchases until next January or February. The past week, therefore, may be regarded as the opening salvos of a possible potash price war as major customers appear to be ready to challenge the price setting power of  Canpotex Ltd. (a cartel like structure made up by Potash Corp., Agrium and Mosaic) which sells potash internationally. The main reflection, therefore, is not that there is any less demand for potash itself, but that the disparity between what international markets are willing to pay and what Canpotex is offering is greater than anticipated. Canpotex has leveraged its power in the confidence that farmers will eventually have to give in order to boost production. However, less than expected growth worldwide and a continuing recession have given the ‘buyers’ a stronger hand for the time being. It’s now a matter as to which party gives up first. Perhaps better weather conditions and signs of an economic recovery will put prices firmly back under Canpotex control; until then, the buyers have the cards in their favor.

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Our weekly change in share price chart (in CAD$) for ProEdgeWire Potash & Phosphate sponsors follows:


Company name Symbol          October 15 October 19 % Change
AGUIA RESOURCES AGR.AX 0.14 0.14  0.00
ALLANA POTASH CORP AAA.TO 0.56 0.52 -8.93%
IC POTASH ICP.TO 0.85 0.81 -4.71%
POTASH MINERALS LTD POK.AX 0.40 0.33 -16.25%
U3O8 CORP UWE.V 0.35 0.40  14.29

Total % Change for the Week: -15.6%                                                                                                

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