Canpotex Gives India a Bargain

It has been recently reported that Canpotex – a partnership between Potash Corp. of Saskatchewan (POT - Analyst Report), Agrium Inc. (AGU - Analyst Report) and Mosaic Co. (MOS - Snapshot Report) – has agreed to supply potash to India at $460 per ton. This is much lower than potash prices of about $700 per ton agreed upon with India last year.

Canpotex is a part of the potash cartel that controls about 75% of the global potash capacity. Besides Canpotex, the potash cartel comprises three Russian producers (Uralkali, Belaruskali, and Silvinit) and a German producer – K+S.

The price of potash – an essential crop nutrient – was obstinately high on top of falling demand. To keep pricing unaffected, the fertilizer cartel had deliberately curtailed production. About 40% of the global potash production capacity has been idled since the second half of 2008.

The recent price cut by Canpotex has indeed followed the footsteps of Silvinit and K+S, who have already agreed to supply potash to India at the same price. Canpotex’s main rival BPC – the marketing arm of Uralkali and Belaruskali – are yet to confirm the deal to sell potash at this price.

The price cut is expected to yield positive results by loosening up the market. This is already reflected by the rise in shares of Potash Corp. and Mosaic recently despite their downbeat second quarter results. It is highly anticipated that the price cut will also bring back the big players in the potash market, such as Brazil and China.

We continue to recommend shares of AGU and POT as Hold.

Read the full analyst report on POT

Read the full analyst report on AGU

Read the full analyst report on MOS