Right Time and Right Stock: AAA
By Leia Michele Toovey- Exclusive to Potash Investing News
Potash’s value was hard hit by the economic downturn as investors abandoned agricultural commodities.Demand plummeted as potash’s long soil half life made cashed strappedfarmers reluctant to apply the nutrient to their fields. The recoveryfor the crop nutrient has recently been underway; and with springplanting in the northern hemisphere just around the corner- things arebound to heat up.
Analysts and producers are confident that the market hit bottom latein December 2009; and since then a slow recovery has been underway. Asign that the supply and demand balance has been turning around: stockpiles have been on a steady decline.
Analysts, producers, and consumers are closely monitoring potashcontracts, to predict what moves the market will make. Potashcontracts are unique compared to other commodities in that buyers andsellers agree to longer-term, set price contracts, rather than using aspot market. The latest contract to be inked is between IsraelChemicals Ltd, and India. The contract is for one million tonnes ofpotash at $370 per tonne. The price of the contract is very typical intoday’s market, but it’s the volume that’s so impressive. Israel willsupply India with enough potash through March 2011, a deal worth $370million. Deliveries will begin in April. Although the price is wellbelow the $460 per tonne bid in last year’s potash contracts withIndia, it is $20 per tonne higher than in contracts signed earlier thisyear with China, and with the volume of the contract it’s worth morecash than usual.
An analyst at Merrill Lynch commented that although potash pricesare slowly stabilizing, the willingness of companies to sign long termdeals is clear evidence that a swift recovery could be just around thecorner. The fact that purchasers are willing to front the cash to lockin the current prices is evidence that they believe a price increase isaround the corner. For the producers, settling a lower price contracthas some appeal because it is a guarantee of cash, in the current “cashis king” market.
The other deals recently inked have been for the same price.Canpotex, a marketing group representing North American potashproducers including Potash Corp. of Saskatchewan,Mosaic Co. and Agrium Inc., agreed to sell about 600,000 tonnes toIndia for $370 a tonne last month. OAO Uralkali’s trader BelarusianPotash Co. agreed this month to ship 900,000 tonnes of potash to Indiabefore March 2011, at $370 a tonne including shipping.