Don't Count out North American Potash Producers

North American potash producers are worth considering in the wake of recent market developments.

Mar 18, 2014 at 1:54PM

In July last year, Russia's Uralkali walked out of a marketing partnership with Belaruskali, breaking up one of the two joint marketing ventures in the potash market. The breakup of the Belarusian Potash Company (BPC) export consortium pushed share prices of companies in the other consortium, Canpotex, sharply lower. The major concern was that the breakup of the arrangement would push potash prices below $300 per ton. Since then, potash prices seem to have found a floor. Additionally, Uralkali and Belaruskali might get back together after all. All these are positive developments for the likes of Potash Corp. (NYSE:POT), Mosaic Co. (NYSE:MOS), and Agrium Co. (NYSE:AGU).

BPC
Along with Canpotex, which includes Potash Corp., Mosaic, and Agrium, BPC controlled 70% of the global potash market. BPC alone controlled 43% of the global market. It was therefore not surprising to see potash prices move sharply lower after the breakup of BPC.

The virtual duopoly had allowed Canpotex and BPC to maintain potash prices at profitable levels. But with one of the consortiums gone, there were fears that prices would fall below $300 per ton in the second half of 2013. Although that did not happen, investors remained bearish on shares of all three companies in Canpotex. Potash and Mosaic were particularly hit hard as they are less diversified than Agrium.

A floor for potash prices
Potash prices remained slightly above $300 per ton and have stayed at this level since the start of this year. More importantly, potash prices have found a floor.

Earlier this year, Uralkali entered into a new semi-annual supply deal with China, the world's largest consumer of potash. Uralkali agreed to sell potash at $305 per ton to China, down from $400 per ton in 2013. With the most important customer for potash agreeing to a price above $300 per ton, a great deal of uncertainty over pricing has ended for potash producers. Not surprisingly, shares of Potash Corp., Mosaic, and Agrium have bounced back, gaining 9.39%, 7.51% and 7.86%, respectively, since the start of February.

Uralkali and Belaruskali may get back together
Contributing to the gains in shares of Potash Corp., Mosaic, and Agrium has been speculation that Uralkali and Belaruskali may get back together after all.

One of the conditions set by Belarus president Alexander Lukashenko for a possible reunion of Uralkali and Belaruskali was the exit of Suleiman Kerimov, who held a controlling stake in Uralkali. That condition has been fulfilled, with Kerimov selling his controlling stake in Uralkali. According to the Financial Times, billionaire Mikhail Prokhorov's Onexim, which bought the stake from Kerimov, and Uralchem back restarting the partnership with Belaruskali. Onexim and Uralchem are the largest shareholders of Uralkali.

These reports certainly suggest that the partnership could be renewed. In fact, even Potash Corp. CEO Bill Doyle expects the two companies to get back together. Speaking at a conference in February, Doyle said that it was logical to expect Uralkali and Belaruskali to get back together.

The developments in Ukraine over the past month are another reason why the partnership could be renewed. In the wake of the Ukrainian conflict and especially after Crimea voted to secede over the weekend, Russia has been isolated. In such a scenario, Russia would want to strengthen ties with its neighbors. A deal with Belarus president over BPC would be one way to do it.

Worth investing?
Shares of North American potash producers were hammered after the breakup of BPC. However, as I noted, shares of Potash Corp., Mosaic, and Agrium have bounced since February as a great deal of uncertainty over pricing has ended. With the possibility of Uralkali and Belaruskali getting back together, North American potash producers are certainly worth a look.

See our top stock pick for 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

 

Varun Chandan Arora has no position in any stocks mentioned. The Motley Fool owns shares of PotashCorp. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers