are investors raving over the wrong fertiliser

'"The sharp increase in agricultural prices will continue to support fertilizer prices," analysts at First Securities said.'

Investors have been looking for price rises in potash and not getting them. Meanwhile phosphate and nitrogen prices have continued to surge. Fertiliser boom part 1 showed phosphate is always the first to move. Potash last ... YC

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Are investors raving over the wrong fertilizer?
23rd September 2010, by Agrimoney.com

BHP Billiton has stirred up the potash sector by bidding for PotashCorp, the biggest miner of the fertilizer, sending prices of shares in other producers higher too.

However, potash appears the one of the big three nutrients ? with nitrogen and phosphate - whose price has been unmoved by the jump in crop prices.

Phosphates have risen by some 50% this year, approaching $500 a tonne free on board in the US port of Tampa, data on PotashCorp's own website shows.

Urea, a nitrogen-based nutrient, has managed this gain since June, hitting $340 a tonne this week in the Ukraine port of Yuzhnyy, which sets a global benchmark.

Cutbacks ahead?

This made urea ? unusually ? more expensive than potash, which PotashCorp's website shows flatlining at a little under $350 a tonne, but which more detailed sources show in decline.

Fertilizer Week America said tidewater potash prices in Vancouver fell by some 3.6% in a week, to about $332.50 a tonne, amid a hold-out by buyers against an attempt by producers' cartel Canpotex to lift prices.

"No agreements have been reached so far. The buyers rebuffed earlier attempts to raise prices," the publication said.

And analysts at Salman Partners believe further declines may be in the offing, potentially to $320 a tonne.

"We would not be surprised to hear of Canadian producers announcing cut-backs in production in order to sustain prices," the Canadian broker added.

Chinese factor

The gloomier outlook defies widely-held expectations that the food commodities rally would revive prices of all nutrients, although potash use appears to have rebounded substantially, producers' results show.

"The sharp increase in agricultural prices will? continue to support fertilizer prices," analysts at First Securities said.

However, urea prices are also getting a help from an environmental clampdown in China, whose exports of the nutrient had looked likely to offset the inflationary potential of a Western industry which is running "at full capacity utilisation", the Norwegian broker said.

"The only possible option for increased supply is from China. However, the country is now reducing production due to environmental issues and given the sharp increase in domestic prices and a return to a high export tax regime, increased exports is unlikely."

The comments came as First Securities restated a "buy" rating on shares in Norwegian nitrogen giant Yara International, with a price target of NOK300.

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