By Leia Michele Toovey-Exclusive to Potash Investing News
Shrinking potash inventories are providing a clear signal that the market can bear another price increase. Potash inventories held by North American producers dropped by 183,000 tonnes in March, leaving inventories at 1.8 million tonnes, 26 percent below the five-year average.
Potash prices have been on the upswing since 2009, with wholesale potash prices topping $400 a tonne, excluding freight, last month in Vancouver. At a farmer level, potash prices have already hit $598 a tonne in the U.S. Canpotex recently announced a price hike to Latin American and Asian customers, selling potash at $520 per metric tonne for delivery in May and June. Following their March price hike, German Potash Miner K+S Ag (ETR:SDF) said more price hikes are likely in the future. “After Easter we will provide new price guidance,” said Chief Executive Norbert Steiner. K+S’ March price hike was to $508 per tonne.
While high grains prices are a big reason potash producers can boost the price charged for the crop nutrient, this high demand is prompting mine expansions, and output increases on mines mothballed in the recession. Potash Corporation of Saskatchewan (NYSE:POT) previously announced that they would up production to near their limit this year, in order to supply enough potash.
While potash stockpiles are dwindling, the phosphate market may be faced with a “critical” shortage, according to Profercy Phosphates & NPKs editor Tom Jago. Trouble in North Africa and the Middle East, environmental issues in the US and shrinking exports from China are all eroding supplies of the crop nutrient. “The phosphate market has suffered some quite serious supply shocks,” according to Jago. China has imposed a super tax for most of the year on DAP exports, leaving only a small window when producers have to compete for space at busy ports to sell their products to overseas customers. The recent upheaval in North Africa and the Middle East, which he said accounts for 80 percent of global phosphate resources, has caused phosphate supply disruptions. Tunisia, a major supplier, closed production for three months as a result of the turmoil.
Mosaic Company (NYSE:MOS) recently reported strong fiscal-third-quarter earnings, on the back of high demand for crop nutrients, particularly phosphate. The company said agricultural fundamentals remain intact despite recent political unrest in North Africa and the Middle East and the devastating earthquake and tsunami in Japan. For the quarter ending Feb. 28, Mosaic posted a profit of $542.1 million, or $1.21 a share, up from $222.6 million, or 50 cents a share, a year earlier. Revenue climbed 28% to $2.21 billion. Analysts expected a profit of $1.07 a share on revenue of $2.34 billion. Phosphate sales jumped 50 percent, while the average selling price increased 62 percent. Potash sales grew 3.8 percent, while prices were up 0.6 percent.
In other news, Mosaic announced that it has notified the United States District Court for the Middle District of Florida that it plans to conduct non-wetlands mining in an area at its South Fort Meade, Florida, phosphate rock mine. Mosaic plans to begin transitioning its mining operations into these uplands over the next 30 to 60 days. The South Fort Meade permit for mining wetlands issued by the U.S. Army Corps of Engineers is under review by the District Court, as recently ordered by the Eleventh Circuit Court of Appeals. The Company estimates approximately one to two years of mining potential in this area.
Evergreen Industries, a diversified industrial holdings company in China, has agreed to purchase Potash explorer MagIndustries Corp. (TSX:MAA) for C$115 million in cash. The C$0.25 friendly takeover bid represents a 67 percent premium to MagIndustries’ closing price before the offer was announced. MagIndustries’ principal asset is a 2,000 square kilometer area within Kouilou province in the Republic of Congo. MagIndustries’ board has approved the deal, and certain shareholders have already entered lock-up agreements to vote in favour of the offer. The transaction remains subject to both shareholder and regulatory approvals.
The EPA has reached a $1.4 million settlement P4 Production LLC, a subsidiary of Monsanto Company (NYSE:MON). The EPA accused the company of discharging wastewater tainted with selenium and heavy metals into waters without a permit at its phosphate mine and processing facility in southeastern Idaho. Along with the civil penalty, the company has agreed to spend about $875,000 on monitoring to prevent pollutants from getting into nearby rivers and streams.