John Shmuel, The Financial Post February 4, 2011 – 4:55 am
POTASH
When Potash Corp. of Saskatchewan CEO Bill Doyle delivered the company’s fourth quarter earnings last month, the main piece of data analysts anxiously awaited was the company’s outlook of potash prices in 2011. While spot prices have risen as high as US$550 in North America during the past five months, internationally, they’ve been closer to US$400. Mr. Doyle gave investors a bright outlook however, predicting they would hit at least US$500 a tonne delivered by the end of the year.
David Whetham, fund manager for Scotia Asset Management, said despite some of the concerns prices might be overvalued, he eyes the fertilizer-component as a potential performer this year.
“The potash market looks strong, because a couple of years ago when the potash market went to $1,000 a tonne, the farmers just basically stopped buying it,” he said. “And I think you have a situation where eventually, farmers have to catch up.”
Soil simply depletes after it is farmed extensively for a period of time, and fertilizers are needed to restore nutrients used by plants. Also, many regions in China and India have mineral deficient soils, and those two countries have helped push potash prices up. He expects them to continue to be active buyers this year.
How to play it: Fertilizer companies tend to benefit when potash prices rise (except in the case where they rise to the point to stifle demand, as was the case a couple of years ago). The industry’s top stalwarts are Potash Corp. and Mosaic Co. Nelson Mah, an analyst with Northern Securities, also cites junior fertilizer companies IC Potash Corp., Stonegate Agricom Ltd. and Western Potash Corp. as possible alternatives.
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