Update Potash of Saskatchewan (POT)
Potash of Saskatchewan (POT) has been doing a lot of talking recently at private dinners with Wall Street analysts and Wall Street conference calls.
The picture that emerges is of a company a lot more confident that it can see the turn in the fertilizer market.
Update Yara International (YARIY.PK)
Norwegian fertilizer maker Yara International (YARIY.PK), already the biggest publicly-listed fertilizer maker in the world, just bought itself a big hunk of the North American market.
In an all-cash deal Yara agreed yesterday, February 15, to buy Terra Industries (TRA) for $4.1 billion. Terra had been the object of a hostile bid from CF Industry Holdings (CF) that had valued the company at $3.88 billion.
The price certainly can’t be called cheap–Yara is paying a 24% premium to the February 12 price for Terra–and there aren’t a lot of synergies in the deal—Yara has pegged cost savings post-acquisition at just $60 million in the first year.
But buying Terra will give Yara a 30% share in the North American market. And access to cheap U.S. natural gas. With natural gas, a major fertilizer feed stock, projected to stay cheaper in the United States than in Europe for at least the next few years, the deal gives Yara a big low-cost manufacturing base. In addition using company estimates and discounting for some inefficiencies in older and smaller Terra plants, it looks like Yara is adding capacity for about 20% less than it would cost to build new plants from scratch.
Yara management has set a goal of 10% global market share; this deal brings Yara to about 8%.
Whether the deal is good for Yara shareholders or not depends on your view of fertilizer demand.
Update Bunge (BG)
Brazilian iron ore giant Vale (VALE) said on January 15 that it’s in talks with Bunge (BG) to buy that company’s fertilizer assets in Brazil.
The deal, for as much as $3.8 billion, would relieve Bunge of a unit that showed a loss of $127 million in the third quarter, and give the company cash to pay down debt that stood at $4.1 billion at the end of September 2009.
For Vale, the deal would give the company, which already produces potash fertilizer at Taquari-Vassouras in northeast Brazil and is developing new projects in Brazil, Argentina, Canada, and Peru, additional scale in the short-term and in the longer-run a potential path to dominating Brazil’s fertilizer market.
Update Yara International (YARIY.PK)
Do Norwegian’s grin? Surely that was a trickle of a smile at Yara International’s (YARIY.PK) annual update for investors on December 10.
The Norwegian fertilizer company reported that the nitrogen fertilizer market was headed for demand-driven price increases in the first half of 2010. Urea supply, a major form of nitrogen fertilizer, should remain tight in 2010 with only three projects likely to come on line. Supply (ex-China) in 2010 will increase by 3%, according to Deutsche Bank, while demand will climb 5%, the bank projects. Chinese exports are likely to remain limited in 2010 as higher production costs limit the competitiveness of Chinese urea. Yara International plants ran at about 63% of capacity in 2009 and these scenarios should result in a pickup to near 80% of capacity.
Update Potash of Saskatchewan (POT)
Just before Christmas Belarussian Potash finally signed its long-awaited deal to sell potash fertilizer to China for $350 a metric ton (including freight). That put a floor under potash prices and gave investors the certainty they’ve been waiting for. The result was today’s (January 5, 2010) upgrade for Potash of Saskatchewan (POT) and several other North American potash producers to “outperform” by Credit Suisse. That has sent fertilizer shares soaring today. Potash of Saskatchewan shares were up 5.7% for the day as of noon on January 5.
At $350 a metric ton the price was lower than many had hoped—prices hit $520 a ton in 2008—but higher than the $300 a ton some had feared. The deal did indeed lead Potash of Saskatchewan to cut prices on December 28. But the signing will remove a major log-jam holding up other sales. Nobody wants to buy if prices are about to head lower. China normally gets a rock bottom price because it buys so much potash and other fertilizers. India and Brazil, for example, normally pay a premium to China’s price even though they huge customers. The upshot is that after Belarussian Potash/China deal customers can buy with knowledge of where the floor is.
In its upgrade Credit Suisse forecast that global potash sales would climb to 45 million metric tons in 2010. That would be a huge increase from the 25 million to 30 million tons in demand in 2009.
But the jump in demand isn’t likely to bring a big increase in potash prices. At least not immediately.
