EDITOR: | September 15th, 2013

Potash shares buoyed by hopes Uralkali dispute will be settled

| September 15, 2013 | No Comments
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Potash companies will be looking for a more positive week ahead based — if not on market fundamentals, which are not exactly crash hot at present — then at least on the politics of Russia and Belarus. As the news services reported at the weekend, a resolution of the Belarusian Potash versus Uralkali stoush has provided support to shares. Potash Corp of Saskatchewan saw its price rise 2.32% to $C33.57 on Friday, while it was reported that Israel Chemicals in Saturday trading headed for the highest close in more than a month, gaining 6.4% to 29.92 shekels. An ally of President Putin is looking to take control of Uralkali thus satisfying the Belarus demand for a change of owner or strategy.

However, the news out of Morocco may weigh on phosphate shares this week. It is reported the Moroccans plan to increase phosphate output from the present 30 million tonnes a year to 50 million tonnes by 2017 despite a fall in global prices. The budget for this expansion is about $15 billion. That’s rock phosphate; the state-owned Morocco Phosphate Co is also planning to raise its downstream fertilizer output from 3.5 million tonnes to 10 million tonnes by 2017.

As can be seen from the table below for our InvestorIntel week-in-review, share prices have been generally subdued over the past week. But keep an eye on potash stocks as we head into a new trading week to see whether Friday and Saturday’s new momentum can be sustained.

2013-9-15-Potash-Phosphate

But the longer term issue remains Uralkali and its announced volume over price strategy. While the Russian threat to increase production, using the company’s low cash costs which enable it to still make a profit even if potash prices fall further, remains, so will jitters about share prices. However, a resolution of the dispute and a reunited Belarus-Russian cartel could see Uralkali’s production hike plans abandoned.

There are already indications of further weakness in the potash price, with indications the Brazilians have been buying as low as $370/tonne (with freight included in that). We have reported here previously that similar deals are being offered in Southeast Asia.

India is the other issue. There has been some relief with the rupee regaining some of its lost ground, but HSBC Bank is predicting further weakness. A falling rupee is not good news for companies wanting to sell potash. Some Indian buyers are locked into contracts around $430/tonne and these may seek to renegotiate to a level of $370, in line with spot sales to other parts of Asia: apparently the Indians are hoping to play off Russia against Belarus to get better deals, but this window could close. There have also been reports that Indian buyers have asked for shipments to be delayed. We may also see the Chinese try and get a better deal from Canpotex.

With phosphate, the market seems subdued. The news is that Indian orders are not coming through at present and Brazilian demand has eased. The big fall in the diammonium phosphate market (they are now below $400/tonne in some markets) is largely due to evaporation of Indian demand, caused by the plunge in the value of the rupee. Both the Jordanian and Saudi Arabian producers are said to be finding it hard to make sales and face rising inventories.


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