Potash market selloff (T.POT) is a rare buying opportunity: Analysts were scouring the market for buying opportunities Tuesday after a Russian company pulled out of a marketing group that controls about 43% of global potash exports.
News that Uralkali has decided to stop its export sales through Balarusian Potash Company and direct all export volumes through its own Uralkali Trading arm wiped about $20 billion from the equity value of potash companies in Europe and North America, analysts said.
The big fear is Uralkali will deliver on a threat to sell directly to China, potentially driving potash prices down by about 25%. In doing so, it could impact the Canadian potash producers who sell via a rival entity called Canpotex, which has the ability to set prices because it is so large.
Potash Corp. of Saskatchewan Inc. (TSX: T.POT, Stock Forum), the market leader, was down 20.2% to $31.03 Tuesday, leaving a market cap of $26.9 billion, based on 866.9 million shares outstanding. The 52-week range is $45.98 and $37.02.
News from Russian also sent U.S company Mosiac Co. (NYSE: MOS, Stock Forum) down 19.4% to $42.6, leaving a market cap of $18.6 billion, based on 425.8 million shares outstanding. The 52-week range is $64.65 and $48.29.
Agrium Inc. (TSX: T.AGU, Stock Forum) was off 4.2% to $89.91, leaving a market cap of $13.4 billion, based on 148.7 million shares outstanding. The 52-week range is $116.38 and $87.78.
Smaller companies in the sector were also hit hard.
Karnalyte Resources Inc. (TSX: T.KRN, Stock Forum) saw its stock price drop nearly 50% to $3 Tuesday, leaving the company with a market cap of $82.4 million, based on 27.5 million shares outstanding. The 52-week range is $9.65 and $5.60.
Passport Potash Inc. (TSX: V.PPI, Stock Forum) tumbled 11% to 12.5 cents, leaving a market cap of $22.9 million, based on 183.6 million shares outstanding. The 52-week range is 26 cents and 14 cents.
But some analysts said Tuesday’s selloff may be overdone and predicted that stock valuations could easily recover, especially if Russian President Vladimir Putin uses his influence to step in and resolved the situation.
“Potash Corp. and Agrium are profitable, strong organizations which have the ability to deal with some market uncertainty,’’ said Ernie Lalonde, senior vice-president, mining with DBRS in Toronto.
Craig Fehr, a Canadian investment strategist with Edward Jones agreed.
“When you look at a name like this [Potash Corp.] where you see it off double digits, you take a step back as an investor and ask yourself is there something structural going on here or something that’s a little bit near term or superfluous,’’ Fehr said.
“When we look at this, obviously potash prices are important to their business, but it doesn’t change the production factor at Potash or Agrium, it doesn’t change the long term dynamics,’’ he said.
“We would step in and buy here because the fundamentals of the company remain intact.”
Mark Gulley, analyst with BGC Partners said he would be buying the so-called Ag-tech companies, which are engaged in producing chemicals for seed and crop protection.
Those include, Monsanto Co. (NSYE: MON, Stock Forum), which was off 1.05% to $100.49 Tuesday, leaving a market cap of $53.6 billion, based on 533.1 million shares outstanding. The 52-week range is $109.33 and $82.70.
Another is Sangenta AG (NYSE: SYT, Stock Forum), which slipped 0.65% to $79.64 Tuesday, leaving a market cap of $36.3 billion, based on 456.3 million shares outstanding. The 52-week range is $87.73 and $67.01.
Gulley said it looked to him like the selloff was driven by a spat between two CEOs.
Uralkali CEO Vladislav Baumgertner supported that view, saying in a statement posted on the company’s website that the Russian company has supported a united sales network, but that has been upset by a Belarusian presidential decree in December and sale by Belaruskali outside the marketing partnership.
However, some analysts believe the two could be persuaded to resolve their differences.
“I think it [marketing alliance] will be partially re-done,’’ said Ray Goldie of Salman Partners. However, he was more cautious about saying that the resulting selloff is a buying opportunity. “It’s too soon to call.”
However, Goldie said he is a follower of Agrium and said July and August are traditionally strong months for the company. (with files from The Canadian Press).
Tags: INDUSTRIAL METALS & MINERALS AGRICULTURAL INPUTS
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