Potash
Belisarius cough an interview with the K+S CEO Norbert Steiner on CNBC this morning and got interested in potash producers on the Mr. Steiner words that he expects 50% increase in demand measured by volume. The K+S is the seventh largest potash producer in the world (PotashCorp data) . Earnings today came out below consensus, and raised issues on company’s debt covenants and credit rating. More in these two Bloomberg articles: K+S Profit Almost Wiped Out on Slumping Demand for Fertilizers; K+S Seen Needing Share Sale After Potash Profit Wiped. Video:
I’ve been following fertilizer producers from the start of their down way. It seemed very interesting given the demand starts to recover. Maybe the time has come.. Especially interesting in the fertilizer universe is the potash segment because of highly concentrated market shares enabling pricing power to the producers; almost zero government control over the mayor companies (both ownership and regulatory) and large barriers to enter the market (large initial investment outlay and long time to develop a greenfield project).
Chart 1. Potash Producers
Source: PotashCorp
Price of both nitrogen and potassium fertilizers have come down significantly, but due to oligopoly structure of the market potassium fertilizers have come down less than nitrogen fertilizers.
Chart 2. Fertilizer Prices
Source: Bloomberg
Surprising discipline in production cuts have managed to balance the market volume vise on the end. PotashCorp took a lot of responsibility on its shoulders acting as a “OPEC of potash” trying to preserve prices.
Chart 3. Potash Production Cuts
Source: K+S
And moving to demand forecasts. Here it becomes interesting. If they manage to preserve the prices (producers sacrificed a lot of revenue this year on behalf of this), so quite probable, they could have probably the second best year ever.
Chart 4. Potash Demand Forecasts by K+S
Source: K+S
Long term fundamentals were never at question in food demand because of raising population and improved nutrition.
Chart 5. Grain and Oilseed Production
Source: PotashCorp
Chart 6.
Source: USDA, K+S
Chart 7.
Source: USDA, K+S
Most of the producers are listed. I would go with PotashCorp (POT), but Mosaic (MOS) and Intrepid Potash (IPI) seem interesting also. For Russia fans you have Uralkali (URKA.London). K+S (SDF.Frankfurt; KPLUF.PK) seems like the best candidate for speculation, but threat of dilution is significant here. Also some M&A speculation here. Bloomberg story: Intrepid Potash Calls Jump Amid Takeover Speculation.
Chart 8. Potash Producers Share Performance
Source: K+S
Intrepid Potash (IPI), K+S (SDF.Frankfurt; KPLUF.PK), Mosaic (MOS), Potash, PotashCorp (POT), Uralkali (URKA.London)