Bad news continues to hurt potash stocks

The article below from FinancialPost.com was published on 16 April, but the big global listed potash players continue to see their share prices under pressure.

As noted in previous posts on this forum, the spot price continues to hold around $305 which is probably good news for Highfield.

http://www.financialpost.com/m/wp/b...luts-bad-news-continues-to-hurt-potash-stocks

Cheap contracts, tax changes and supply gluts: Bad news continues to hurt potash stocks
Potash producers just can’t catch a break.

A cheaper-than-expected contract between China and Belarus, changes to potash taxes in Saskatchewan and an ongoing market oversupply have all conspired to dent potash stocks and analyst outlooks for this year.

“We are forecasting a relatively flat potash price over the next two years,” CIBC World Markets analysts said in a report on Wednesday.

Producers of the soil nutrient have been dealing with bad news for the past two years, ever since Russian fertilizer company Uralkali and Belarus’ Belaruskali terminated their joint market agreement. With the end of their cartel, both companies raced to flood the market with potash in an effort to win market share, which led to a global price crash.

That competitiveness still continues, and other companies are also flooding the market with potash to ensure they don’t get left behind.

That likely explains why China and Belarusian Potash Co. signed a deal last month that many companies saw as significantly undermining global potash prices. The China deal was expected to lead to an increase of five to 10 per cent from the $305 a tonne contract signed in 2014, but the new contract is worth only $315.

Chinese analysts said the market simply overestimated the potential value of the contract given the large inventory levels of potash in China and global oversupply.

“We think further potash price declines are a near certainly in 2015, based on a widening supply/demand balance, as well as more aggressive competition by most producers,” Scotiabank analysts said in a report on Wednesday.

Even Potash Corp. of Saskatchewan Inc., the world’s largest producer of the soil nutrient and a popular company with dividend investors, hasn’t been immune from the spate of bad news.

Potash Corp. last month announced its profit would likely be lower by up to $100 million this year after Saskatchewan’s latest budget ushered in changes to the potash tax that eliminate some of the business deductions the company enjoyed in the past.

The tax changes are an effort by the province to make up for the recent plunge in oil prices, which comprise a large portion of Saskatchewan’s revenue.

While most analysts expect potash prices will remain flat for up to two years, some are much more bearish. Last month, Macquarie Group released a commodity report that said it did not expect potash prices to rise for the next four years.

But analysts say investors can still find limited opportunities in the market.

Scotiabank analysts see four companies potentially rising above the bad news this year: Agrium Inc., which they predict will continue to have strong free cash flow and dividend growth; Mosaic Co., because of its strong profit growth outlook and good book valuation; CF Industries Holdings Inc., because of its strong free cash flow growth; and Sociedad Quimica y Minera de Chile, whose stock was hurt after three board members stepped down in March, but should become more stable with the election of three directors later this month.