The shares of fertilizer producers continue to be underpinned by the weak global macroeconomic picture, despite the bullish projections on the near and long-term outlook for the sector.
India is just one of the many nations in the world dealing with a food crisis. While the country is experiencing unprecedented population growth, the amount of arable land is shrinking, thereby increasing the need for fertilizers.
A class action suit alleging price fixing by the world’s top potash producers: Potash Corporation of Saskatchewan, Mosaic and Agrium Silvinit (now merged with Uralkali) , IPC, and Belaruskali has been tossed out by a federal appeals court.
Kazakhstan has long been known to contain potash reserves; however, no mine has been developed. Preliminary estimates suggest that the country, which is favourably located in close proximity to the Asian markets, may hold enough potash reserves to make it one of the world’s top producers.
The recent earnings season was record-setting for many fertilizer producers, and despite a shaky global economy analysts expect that high-profits will continue into the foreseeable future.
Knowing very well that economic troubles may lie ahead, executives of major fertilizer companies have stood firm in claiming that their industry is well-positioned to withstand a bumpy ride, and claim that it will take a “severe and prolonged” global recession to crimp fertilizer demand.
Canpotex and India have finally come to a six-month deal in which India will pay, at least at the onset, $470 per tonne including freight, for potash, approximately the same rate that China is paying.
The June vote by the US Senate to stop ethanol subsidies has raised concerns about the impact the decision may have on the potash market.
Canpotex will supply China with 630,000 tonnes of the crop nutrient in the second half of 2011 at $470 per tonne, a 17.5 percent increase compared to the contract pricing agreed upon for the first half.
According to market experts high food prices are likely to persist for the next few years. However, high food prices are good news for potash prices, because as the price that farmers can sell their crops for rises, so does their cash flow to spend on fertilizer.
Wednesday, November 16, 2011