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Prices signal 'tightening' potash market Add to ...

The beleaguered fertilizer industry got another shot in the arm yesterday after international potash marketer Canpotex Ltd. announced a price hike of $30 (U.S.) a tonne.

This follows price increases by European exporter Belarusian Potash Co. (BPC), which raised its price recently by $25 a tonne in Southeast Asia, and by German potash supplier K+S.

The move by Vancouver-based Canpotex boosted prices to $415 and $430 a tonne, respectively, for standard and granular grade potash.

"We are seeing markets starting to move with some momentum," said Canaccord Adams analyst Keith Carpenter. "This is the first of a couple of steps that we will see in price increases this year. It's nothing like we saw previously [in 2008 when price hit $1,000 a tonne] but it's a step in the right direction."

Potash prices, which were pummelled last year amid a financial crisis, are returning to a "more normalized situation" because of an economic recovery and because farmers are now more comfortable buying because they feel that prices have bottomed, he said.

Everyone knew that prices were going to hit a floor when BPC signed a deal with China at $350 a tonne, Mr. Carpenter said. "China is historically the largest consumer of this product. Everyone was waiting for that Chinese price."

Canpotex is the agency representing Saskatoon-based Potash Corp. of Saskatchewan Inc., Calgary-based Agrium Inc., and a subsidiary of Plymouth, Minn.-based Mosaic Co.

The price hike spurred the analyst to raise his one-year target price on Potash Corp. to $145 a share from $130; Mosaic to $80 a share from $77, and Agrium Inc. to $75 a share from $70.

Bill Johnson, a spokesman for Potash, said that the increase by Canpotex "signals that the market is tightening" as sales pick up. "Everyone was nervous last year as prices were falling," said Mr. Johnston. "Canpotex's international customers were running their inventories down rather than restocking in a typical year.

"Now, Canpotex's [overseas]customers and our customers domestically as well are really restocking their warehouses, and taking more to field. ... It's pretty straight supply-and-demand economics."

Michael Deng, another Canaccord Adams analyst, said the price increases by the three players is also a "positive" sign for Canadian-listed Chinese potash producer Migao Corp.

"China has signed supply contracts for less than two million tonnes of potash for 2010 compared with an import volume of five million tonnes in 2008," said Mr. Deng, who has a target of $9 a share on Migao.

"We believe China will need to import more potash this year, and that the future purchase price will likely be higher given the recent price increases announced by BPC, K+S and Canpotex," he wrote in a report to clients.

POTASH CORP. (POT)

Close: $120.51, up $2.03

AGRIUM (AGU)

Close: $70.05, up 88¢

MIGAO (MGO)

Close: $7.23, up 2¢

MOSAIC (MOS)

Close: $61.60 (U.S.), up $1.17

 

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