Why Potash Stocks Got Pummeled

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of major potash stocks plummeted as much as 23% today after Russia's Uralkali, the world's largest potash producer, broke up a cartel with Belarus that controlled about 43% of global exports.

So what: Uralkali is making the volume-over-price move to steal market share and boost sales to China, completely turning the global potash market on its head. In fact, Uralkali's decision is expected to cause potash prices to plunge to January 2010 levels, sending the stocks of PotashCorp (NYSE: POT  ) , Mosaic (NYSE: MOS  ) , and SQM (NYSE: SQM  ) -- which will now have to compete at the discounted price -- crashing along with the forecast.

Now what: Uralkali sees potash prices plunging 25% to about $300 per ton by the end of year. "In the near future we expect (global) competition to become stronger -- that will push prices down," Uralkali CEO Vladislav Baumgertner said in a conference call. So while it's always tempting to pounce on severely beaten-down stocks, there might be too much uncertainty surrounding potash right now to make the bet a smart one.

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  • Report this Comment On July 30, 2013, at 1:36 PM, aminorexx wrote:

    The Uralkali announcement is overblown. It was probably an intentional act of market manipulation: POT put purchases spiked before the news. K+S says they expect moderate increases in potash prices over the short and medium terms. I would believe K+S over a bunch of Russian mafiosi any day.

  • Report this Comment On July 30, 2013, at 3:25 PM, gfischer13 wrote:

    Uncertainty is the small investor's friend. Already up 8% on MOS and 6% on POT since I bought this morning.

  • Report this Comment On July 31, 2013, at 5:34 AM, JMCastro wrote:

    In November 9, 2012, Chengdong Investment Corp., a unit of the sovereign wealth fund China Investment Corporation, bought bonds from the shareholders of Russian potash global player Uralkali (London Stock Exchange and Moscow Exchange: URKA) with maturation in 2014 which were exchangeable into a stake in Uralkali. China Investment Corporation would be able to convert its investment into a 12.5 percent stake in Uralkali’s ordinary shares. In July 30, 2013, Shares of major potash stocks plummeted as much as 23% after Russia's Uralkali, the world's largest potash producer, broke up a cartel with Belarus that controlled about 43% of global exports. Uralkali sees potash prices plunging 25% to about $300 per ton by the end of year. In the near future, global competition is expected to become stronger and that will push prices down. The Russian company raised fresh Chinese capital and guaranteed the largest and fastest growing potash market - China. Stock market, commodity market sovereign wealth funds and large trade blocs (China, Eurasian Union (proposed for 2015)) gather in a such extraordinary way that the benefits of a free market economy, especially economic performance and high supply of goods are reached, while disadvantages such as market failure, destructive competition, concentration of economic power and anti-social effects of market processes are avoided. This isn't communism, this isn't capitalism, it's modern communist capitalism in action or in other words, it's Third Way turned reality.

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