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Restocking and more normalized demand for potash expected
Posted: July 30, 2009, 12:18 PM by Jonathan Ratner
With the settlement of the Indian contract with Canpotex and Belarussian Potash Co. (BPC) settled, there is an established international benchmark for potash prices. There is also a North American benchmark now that Potash Corp. cut its domestic pricing, according to Dundee Securities analyst Richard Kelertas.
He expects Agrium Inc. to meet this new pricing level and revised his potash price forecast lower with these better indications on both domestic and overseas prices.
“We have been advising investors to take some short term profits since May,” Mr. Kelertas said in a report this week. “However, we now believe that after the overbought period from March to May and the subsequent decline period from the peaks in May to current prices is over. As such, we would advise both short and long-term investors to buy into the fertilizer sector.”
Nonetheless, the price reduction has reduced Dundee’s earnings estimates for Agrium. It cut its 2009 EPS forecast from $4.45 to $3.77, for 2010 from $7.34 to $5.52, and anticipates $6.25 in 2011.
The analyst noted that the average cost of potash production in 2006 and 2007 was $85 per tonne, which climbed to $109 in 2008. In the first quarter, costs rose to $277. However, Dundee sees Agrium’s normalized cost of production at roughly $100 per tonne, “hence the segment remains very profitable despite lower prices.”
“Now that India has settled at lower prices we believe buyers throughout the world will re-stock their inventories, creating more normalized potash demand,” Mr. Kelertas added.
Jonathan Ratner
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