Wednesday, July 14, 2010

Goldman (NYSE:GS) Projects Low Potash Prices - Potash (NYSE:POT), Agrium (NYSE:AGU), CF (NYSE:CF) Will Struggle

The news wasn't good for potash producers, as Goldman Sachs (NYSE:GS) said potash prices will hit a two-year low, and while the autumn fertilizer season could have some strength to it, over the next several years fertilizer companies like Potash Corp. of Saskatchewan, Inc. (NYSE:POT), Agrium (NYSE:AGU) and CF Industries (NYSE:CF) will continue to struggle.

So in the near term, there could be some money to be made in fertilizer companies, buy beyond the fall season, it doesn't look good until at least 2013, said Goldman.

"An early planting season may translate into an early harvest, which lends itself to a nice window for fall application before the winter descends," Goldman said in a note.

Here are the price points Goldman sees going forward:

2010: phosphate, $403; potash, $369
2011: phosphate, $402; potash, $364
2012: phosphate, $395; potash, $365

Even worst news is there could be an oversupply reached in 2014, which may only have 2013 with potential for some growth, although that's obviously not guaranteed either.

This could come about from a large potash project in Saudi Arabia, as well as BHP Billiton entering the potash market via Canadian assets.

For now, Goldman sees demand having no problem being supplied, which seems to be indicated in the flat prices of potash listed above.

1 comment:

Anonymous said...

These projected prices are not very low. It is not the price bubble we've seen in 08 but is not a marginal operation profit either. Worldwide oil supply does not have any problem to meet the demand either, and yet oil prices fluctuated a lot over the past 3 years. Like oil, potash supply is controlled by a relatively small number of large players. By controlling the supply they drive the price. Also, a drought year with low crops could spiral price up. All what I am saying is that I disagree with a projected picture of a stable price over a long period of three years. Potash price will fluctuate and so will the stock. The only solid evidence against a big price hike is the future entrance of two big new players into the market, which in the long term (it takes years to start up a new potash mine) will reduce price control and margins.