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Fertilizers – Potash Inventories Decline in January Even with Higher Production

admin — Thu, 18 Feb 2010 19:37:03 +0000

Fertilizers – Potash Inventories Decline in January Even with Higher Production
The latest inventory data could result in a near-term positive market reaction for global potash producer valuations. The most recent data suggests that potash market conditions are improving. North American potash producers’ potash ending inventory continued to decline in January 2010. Specifically, producer inventories fell 18% (i.e., 552,000 tonnes) below December 2009 levels even though January 2010 production was 72% higher than in December 2009. As a result, potash producer inventories at the end of January 2010 were only 6% higher than the previous five-year average as shown in the chart. In comparison, December 2009 inventories were approximately 50% higher than the previous 5-year average. The potash inventory decline is consistent with RBC CM’s outlook for improving demand heading into spring. RBC CM believes improving demand and declining inventories could lead to higher spot potash prices over time.

BHP Billiton BHP Investing in New Potash Mine

admin — Mon, 25 Jan 2010 16:19:44 +0000

BHP Billiton (BHP) Investing in New Potash Mine
BHP’s plans to invest more money in its Saskatchewan potash project could weaken long-term pricing of the crop nutrient, threaten the viability of junior explorers and prove to be a game changer for the global fertilizer industry. The world’s largest miner plans to invest $240 million to fund the development of the first stages of its Jansen potash project in Western Canada. The mine is being designed to produce about 8 million tonnes of potash a year, or roughly 12% of current global capacity. The $240 million is less than a tenth of what a project this size would cost and BHP only intends to make its final investment decision in 2011, but its announcement raises the likelihood that Jansen will eventually go into production. BHP said it plans to pursue two other greenfield potash projects in the resource-rich Canadian province, while also working on logistics and port facilities to transport product from its mine. The mineral emerged from obscurity a few years ago, when high grain prices, coupled with tight potash supplies and strong demand drove prices to over $1,000 a tonne from below $150. Prices have since retreated to about $350 to $400 a tonne, as farmers hit by the credit crisis and falling grain prices slashed their potash usage. “With BHP coming in, if there is some reasonable discipline among all the players, you could still maintain a price level that is from a high-$200 to a mid-$300 range, which is still extremely profitable,” said Neivert. But pricing in this range could imperil the projects of many junior explorers, whose comparatively small-scale potash projects will only generate viable returns with the price at $500 to $600 a tonne, or more. “It’s been hard enough for juniors to find funding before this (BHP project), because of the expansions that Potash Corp, Mosaic and Agrium have planned,” said Neivert, adding that it could become even tougher for the juniors going forward. Dawn Zhou, the chief executive of Athabasca Potash shrugs off the threat posed by BHP, but admits that junior explorers like Athabasca will have to look for more creative ways to fund their projects with prices at current levels. BMO Capital Markets analyst Joel Jackson contends that BHP’s plan may adversely affect junior explorers in Saskatchewan more than it would affect a company like Mag Industries, which is pursuing a potash project in Africa, as the economics of projects differ in both places. However, not many analysts are overly optimistic about the long-term prospects for both existing potash producers and junior explorers. In a note to clients, CIBC World Markets analyst Jacob Bout said that BHP’s plans for Jansen would “flatten the long end of the potash pricing curve,” hurting junior potash companies. BHP’s foray into the sector might also weaken the hold that potash export consortiums like BPC and Canpotex have over global markets. “The entrance of a large global mining company, such as BHP, into the potash market would arguably weaken the position of incumbent producers, as BHP has a history of running its mines flat out,” said Bout.

Fertilizers – Producer Inventories Fall in December

admin — Mon, 18 Jan 2010 18:13:24 +0000

Producers’ inventories for potash, phosphate and urea nitrogen fertilizer fell in December. The latest inventory data could result in a near-term positive market reaction. North American producers’ pending inventory decreased by 422,000tonnes in December, representing the lowest level reached in 2009. It is RBC CM’s understanding that the decline is attributable to both lower production levels and increased product sales. Inventories still remain 45% above the historical 5-year average and RBC CM expects further improvement before spring planting. RBC CM believes spot potash prices could improve over time as demand improves and inventories decline.

Chemicals and Fertilizers – BPC Indicates Chinese Potash Contract Close to Conclusion

admin — Thu, 17 Dec 2009 18:14:13 +0000

In an interview to Reuters, the Belarusian Potash Company (BPC) indicated that contract negotiations will take place with Chinese potash buyers next week and a contract could be in place by the end of the year. BPC indicated that Chinese inventories had fallen to ~3 million tonnes and there was a shortage of certain products in China. BPC also suggested that it views the Chinese contract as extremely important for a recovery of demand in 2010. BPC did not provide a specific price target for the new contract price but did indicate that it could be lower than the current global spot price. BPC also confirmed that it was currently selling potash in Brazil at $400/tonne. RBC CM is leaving its financial forecasts unchanged pending the announcement of the Chinese contract price. Based on BPC’s commentary, RBC CM believes a 2010 Chinese contract price of ~$350/tonne FOB Vancouver could be reasonable, which would be about $40/tonne lower than its current assumption. The financial impact of a lower-than-forecast Chinese contract price could be partially mitigated by a strong recovery in demand in H1/10, particularly if it leads to a rebound in global spot pricing levels. BPC may seek to settle future deals with China on a spot basis, instead of annual contracts, starting in 2011. Such a move could be positive for global potash producers from a market stability standpoint.