Potash Corp.'s Move Signals Improvements in Potash Market

Potash Corp. recalls layoff because of granular potash market tightness, which is good news for the company and for Intrepid Potash.

Jun 26, 2014 at 4:26PM

The serious drop in potash price that occurred back in 2013 forced cost-cutting moves among potash producers. Surely, such moves included layoffs. However, Potash Corp. (NYSE:POT) has just rescinded its previously announced layoffs at New Brunswick facility because of continuing tightness in the granular potash market. This is one of the first good news from the pressured potash market. Will it mark the beginning of the potash rebound?

Good news for Potash Corp. and Intrepid Potash
Potash Corp.'s average realized potash price fell to as low as $250 per ton in the first quarter, down from $363 in the first quarter of 2013. Potash Corp.'s peer, Mosaic (NYSE:MOS) scored a price of $267 per ton, and only Intrepid Potash (NYSE:IPI) managed to get a price above $300 per ton due to low transportation costs.

In such an environment, each news about the tightness of potash market is welcome. In its second-quarter market analysis report, Potash Corp. stated that granular potash benefited from the growth of North American and Brazilian demand. Lower inventories also contributed to the growth of buyer activity.

However, demand for standard grade potash is not that robust. While Potash Corp expects record first-half shipments, the pricing deserves to be better. Still, the news on granular potash is good for Potash Corp. and especially for Intrepid Potash, which sells its products to domestic customers.

Mosaic upside remains limited
As Mosaic has recently strengthened its leading positions on the phosphate markets with the acquisition of phosphate assets from CF Industries (NYSE:CF), the situation in phosphate markets is more important for the company. Here, Potash Corp's report brings no good news, as it states that phosphate markets softened in the second quarter.

Phosphate prices followed potash prices, diving from $496 in the first quarter of 2013 to $414 in the first quarter of 2014 for Mosaic. Yet, they were even lower in the fourth quarter of 2013, so the first quarter of this year paved way for cautious optimism about possible improvements on this front. However, it seems like the optimistic scenario did not materialize, and phosphate markets will remain soft this year.

This is not positive for Mosaic, as the bigger part of its revenue depends on its phosphate segment. The company's share buyback program is getting closer to its end, and it is unlikely to be continued. The company took $2 billion debt in order to purchase CF Industries' phosphate business while continuing its buyback, and Mosaic lacks necessary funding to expand its buyback further.

Bottom line
The news from the granular potash market marks the first positive developments on this front following the disruption of potash market in 2013. Still, the potash market lacks any big catalysts for significant price increases. The return of Uralkali to a more disciplined approach in growing its production could have been one such catalyst. Rumors that Uralkali will return to its union with Belaruskali appear here and there, but no moves have been made. Without curtailing supply, potash prices have little chance of making a strong rebound from current levels. Until then, it will be difficult for Potash Corp. shares to find major upside.

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Vladimir Zernov has no position in any stocks mentioned. The Motley Fool owns shares of CF Industries Holdings and 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.

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