Fertilizer stocks are flying today on news, reported by Industrial Minerals http://www.mineralnet.co.uk/Article/2350062/Potash-market-flat-in-November.html , that China and Belarusian Potash are negotiating a contract for as much as 850,000 metric tons.
Such a deal would be huge for fertilizer producers and stock since even the most optimistic analysts haven’t seen China buying potash in 2009.
Most forecasts have called for China to stay out of the market until March 2010 or later. And that’s left the entire industry waiting for a buy by China to put a floor under potash prices.
China “normally” concludes an annual potash contract in April, but with potash prices at record levels in 2008 China has been content to sit it out and wait for prices to fall and then stabilize.
The forecast for when China would return to the market was based on the best available data about Chinese potash inventories and put China’s inventories at 1 to 2 million metric tons. But no analyst was really comfortable with that conclusion since Chinese inventory figures are incomplete and often include as inventory supplies that have already moved into the production process or that may, in fact, still be in transit.
And not knowing with reasonable accuracy the size of Chinese inventories, no one was sure when China would buy or what price China would pay.
Under the circumstances, everyone from fertilizer company CEOs to Wall Street analysts to investors has been waiting for the Chinese to sign a major contract that would set a new market price for potash.
The possibility that such a contract might get signed sooner than expected—and the belief that an earlier than expected signing would mean a higher than expected price—this morning has pushed shares of Potash of Saskatchewan (POT) up 2.6%, shares of Mosaic (MOS) up 5.7%, and Yara International (YARIY) up 2.1%.
Potash of Saskatchewan and Yara International are both current Jubak’s Picks.