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www.marketwire.com/press-release/...sx-venture-ppi-1816278.htm
Russian potash producer OAO Uralkali ("Uralkali") announced its exit from the sales organization Belarusian Potash Co. ("BPC"), which it has jointly operated since 2005 with Belarusian potash producer JSC Belaruskali. News of Uralkali's exit from BPC, and its expressed intention to increase production by 2.5 million tonnes next year, has had an inordinate negative effect on potash stocks. We agree with a statement made by K+S Aktiengesellschaft ("K+S") that the pricing for potash fertilizers being spread by the media are unjustified and that they do not reflect the current supply and demand situation in the potash market. We also agree with K+S that the positive medium and long-term trends for potash fertilizers should remain unchanged.
The downward volatility being witnessed in potash stocks across the board today is, in our opinion, a knee jerk reaction to unsubstantiated claims being made from Uralkali. It is instructive to note that when Vale S.A. announced that it was pulling out of its 4.3 million tons per year ("MTPY") Rio Colorado project in Argentina, and BHP Billiton Ltd. put its 8 MTPY Jansen project on hold the markets did not see an associated upward volatility in potash stocks. It is important to keep in mind that the fundamental demand for potash on a global scale has and will likely remain consistent. Regardless of the activities of potash producers big and small, the following fundamentals remain true:
Global population is expected to grow by approximately 300 to 400 million every 5 years; (esa.un.org/unpd/wpp/unpp/p2k0data.asp)
As income growth in developing countries continues to rise, diets change and become more crop intensive;
Arable land is flat in absolute terms and falling per capita, and opportunities to increase arable land are limited; (generalagronomics.com/decline-of-arable-land/)
Crop prices remain high by historical standards and supportive of robust demand for agricultural inputs, like potash.
It is our opinion that the present turmoil is likely to have more of a regional than a global impact. While Uralkali has advantages importing into the Asian markets, potash producers in the Western Hemisphere have similar advantages importing into the US and Brazilian markets, which are top import markets globally. The fallout to the greater potash industry from this muscle flexing between Belarus and Russia remains unclear. We would recommend a more cautious approach to making statements about the state of the industry than "the sky is falling" approach being taken by some analysts and media outlets. We certainly think it is a mistake to lend too much credence to the statements of Uralkali, whose motives at this time are unclear. From a financial standpoint this move by Uralkali makes little sense, as a receding tide will negatively impact all potash producers, including themselves. It will be interesting to see how the management of Uralkali, whose shares were down 20%, responds to the negative reactions of its shareholders.
Russian potash producer OAO Uralkali ("Uralkali") announced its exit from the sales organization Belarusian Potash Co. ("BPC"), which it has jointly operated since 2005 with Belarusian potash producer JSC Belaruskali. News of Uralkali's exit from BPC, and its expressed intention to increase production by 2.5 million tonnes next year, has had an inordinate negative effect on potash stocks. We agree with a statement made by K+S Aktiengesellschaft ("K+S") that the pricing for potash fertilizers being spread by the media are unjustified and that they do not reflect the current supply and demand situation in the potash market. We also agree with K+S that the positive medium and long-term trends for potash fertilizers should remain unchanged.
The downward volatility being witnessed in potash stocks across the board today is, in our opinion, a knee jerk reaction to unsubstantiated claims being made from Uralkali. It is instructive to note that when Vale S.A. announced that it was pulling out of its 4.3 million tons per year ("MTPY") Rio Colorado project in Argentina, and BHP Billiton Ltd. put its 8 MTPY Jansen project on hold the markets did not see an associated upward volatility in potash stocks. It is important to keep in mind that the fundamental demand for potash on a global scale has and will likely remain consistent. Regardless of the activities of potash producers big and small, the following fundamentals remain true:
Global population is expected to grow by approximately 300 to 400 million every 5 years; (esa.un.org/unpd/wpp/unpp/p2k0data.asp)
As income growth in developing countries continues to rise, diets change and become more crop intensive;
Arable land is flat in absolute terms and falling per capita, and opportunities to increase arable land are limited; (generalagronomics.com/decline-of-arable-land/)
Crop prices remain high by historical standards and supportive of robust demand for agricultural inputs, like potash.
It is our opinion that the present turmoil is likely to have more of a regional than a global impact. While Uralkali has advantages importing into the Asian markets, potash producers in the Western Hemisphere have similar advantages importing into the US and Brazilian markets, which are top import markets globally. The fallout to the greater potash industry from this muscle flexing between Belarus and Russia remains unclear. We would recommend a more cautious approach to making statements about the state of the industry than "the sky is falling" approach being taken by some analysts and media outlets. We certainly think it is a mistake to lend too much credence to the statements of Uralkali, whose motives at this time are unclear. From a financial standpoint this move by Uralkali makes little sense, as a receding tide will negatively impact all potash producers, including themselves. It will be interesting to see how the management of Uralkali, whose shares were down 20%, responds to the negative reactions of its shareholders.
