What Uralkali’s mine shutdown may mean for the potash market
Apple Inc | Earnings | Housing Market What Uralkali’s mine shutdown may mean for the potash market More A major supply outage at one of Uralkali’s potash mines in Russia raises the prospect of a much tighter global market for the commodity and could serve as a much-needed catalyst for Canadian fertilizer stocks. The shutdown of the Solikamsk-2 potash mine after Uralkali detected an increased flow of brine, which can weaken a mine’s structure, bodes particularly well for producers such as Potash Corp. of Saskatchewan Inc. to increase their sales since the Russian mine has annual capacity of approximately 2.3 million tonnes. Raymond James analyst Steve Hansen said early indications are that the shutdown will be an extended one or possibly worse, and it comes during a period of international contract negotiations, which could influence both Chinese and Indian contract pricing to the upside. He raised his 2015 international pricing benchmarks by US$10 per tonne to reflect the additional bargaining leverage that potash marketer Canpotex, whose members include Agrium Inc., Mosaic Co. and Potash Corp., should get from this development. “With both Uralkali and Belaruskali running close to flat out of late, we believe that much of the volume shortfall stemming from this supply outage will accrue disproportionately to the western-based producers (i.e., Canpotex) who possess ample slack capacity,” he told clients. Mr. Hansen upgraded Potash Corp. to outperform from market perform and hiked his price target to US$40 from US$38.50, noting the company could see additional sales volumes of between 500,000 and 1.2 million tonnes if Uralkali’s production remains inhibited. RBC Capital Markets analyst Andrew Wong believes Canpotex’s members may benefit from potentially higher prices and market share gains. “In the near-term, we think a tighter supply and demand market may provide leverage to potash producers in their ongoing 2015 potash contract negotiations with China and India,” he said in a research note, adding that Intrepid Potash Inc. should also benefit. Mr. Wong believes a two-to-six-month outage at Solikamsk-2 has been priced into potash stocks based on Tuesday’s stock gains. However, he sees further potential upside if the mine closes permanently. “We believe Uralkali’s… suspension of production is a potential positive for the potash market as it helps tighten near-term supply and demand and may have longer-term implications depending on the severity of the incident,” the analyst said. Mr. Wong noted that other recent potash brine-related events, such as those at Mosaic’s Esterhazy K2 and Belaruskali’s Soligorsk-2, were manageable within three to four months and production was not significantly impacted. However, he also pointed out that a similar event at Uralkali’s Berezniki-1 was more severe and forced a mine closure within 10 days. “We cannot say at this time whether the brine inflow event at Solikamsk-2 is comparable to what happened at Berezniki-1 in 2006, but there may be similar geological features shared by the two areas that indicate the possibility of a severe mine flood that could result in a significant production outage or permanent loss of the mine,” the analyst said. TD Securities analyst Greg Barnes raised his price target on Potash Corp. to US$40 from US$38 as a result of the emergency mine closure. However, he thinks the industry’s surplus production capacity will prevent a material impact on the global potash market’s supply/demand balance, even in the event of a long-term closure. “Other suppliers have managed to successfully control major brine inflows for a long time; Mosaic has been successfully managing brine inflows at its Esterhazy operation for several decades,” Mr. Barnes said in a report https://business.financialpost.com/2014/11/19/what-uralkalis-mine-shutdown-may-mean-for-the-potash-market/?__lsa=8e91-7156