Market and product
Rabobank puts brakes on bullish fertilizer talk
Rabobank cast doubt on ideas of a fertilizer market revivalwhich have boosted shares in giants such as Agrium and PotashCorp, foreseeing "limitedupside potential for global nutrient markets" for now.
Prospects for rises in nitrogen prices look particularlypoor, given the boost to supplies from the opening of the annual low-tax windowfor Chinese urea exports, which has historically seen shipments peak in Augustand September, and from start of shipments from Algeria's Sofert plant.
Meanwhile, demand from South America has proved slow, andcould remain so if growers decide to sow soybeans rather than nutrient-hungrycorn ahead of the early-2013 harvest, Rabobank said.
"We expect ample supply to remain in the urea market duringthe July-to-September quarter, and anticipate persistent pressure on prices," whichin the US have already fallen some 40% from spring highs of about $700 a shortton.
Market weakness was also evident in a late-June tender byPakistan for urea which was "massively oversubscribed", and attracted offersfor the nutrient priced as low as $412 a tonne, down more than $100 a tonnefrom May values.
Price rises stavedoff
However, Rabobank was also tepid on the outlook for potashprices, offering a "neutral-to-negative" forecast, thanks largely to depresseddemand in India, where the weakness of the rupee and a reduction in governmentsubsidy have sent local pries soaring.
| Fertilizer shares' rally over the last month and (listing) CF Industries: +24.8% (New York) Mosaic: +22.0% (New York) Agrium: +20.5% (New York) PotashCorp: +20.4% (New York) Yara: +18.5% (Oslo) K+S: +17.5% (Frankfurt) Data from close on June 4 to close on July 3 or 4. |
"Shipments of approximately 6m tonnes of potash purchased atthe end of last year continue to land at Indian ports," the bank said.
"Nevertheless, market expectations suggest that the localmarket will not even reach 4m tonnes in 2012 due to weak demand by the Indiangrowers."
Furthermore, Brazilian buyers, holding relatively high inventories,have managed to stave off price rises.
"Despite several attempts, sellers have so far beenunsuccessful in securing higher prices for exports to Brazil."
'More upsidepotential than downside'
Phosphates were the most likely of the main nutrients to seeprice rises, thanks to relatively small inventories, and signs of higher competitionbetween buyers.
China's exporters, for instance, "are currently achievinghigher returns in South East Asian markets such as Vietnam and Thailand" thanin India, traditionally a major buyer.
"The pricing outlook for phosphate fertilizers in the third quartersuggest more upside potential than downside risk," Rabobank said, while sayingthat "upward pressure on phosphate prices will be somewhat limited" by extraMiddle East capacity.
Share rally
The comments follow a strong period for fertilizer shares,on ideas that the soaring price of corn, up nearly 30% since the end of May onfears for the impact of dryness on US yields, and which has lifted values ofother crops too, will promote demand from farmers keen to maximise yields.
However, the extent of the gains has raised questions overwhether shares are approaching fair value, with Fraser Mackenzie on Thursdaycutting to "market perform", from "buy" its rating on PotashCorp shares.
On Tuesday, National Bank Financial raised its targets onAgrium's New York-listed shares to $97.50 from $71, and on PotashCorp shares to$47.50 from $35.50.
