Global potash market recovery will be slow – US analyst

22 December 2009 20:42  [Source: ICIS news]

HOUSTON (ICIS news)--Demand recovery and earnings improvement for global fertilizer companies will be gradual at best, and could take two to three years to return to pre-2009 levels, a fertilizer industry analyst said on Tuesday.

“While we are fully on-board with the idea of rising potash demand, we have major misgivings about simply assuming that the fertilizer market conditions experienced from 2005 to third-quarter 2008 will return anytime soon,” said Charles Nievert, an analyst with New York-based Dahlman Rose.

Nievert said he was also sceptical about assumptions that companies would be able to return to their peak 2007 sales volumes by 2011 or earlier.

“It is our sense that a far more gradual rebound in volume - except for an increase into 2010 from the exceptionally low demand of 2009 - is in store for the market for at least the next two to three years,” he said.

Nievert said farmers show little urgency to buy potash, and that producers will have difficulty clearing out enormous inventories.

“If we assume annual production of 50m tonnes, there may be at least 12m-15m tonnes of excess capacity globally,” he said.

Events contributing to Nievert’s concern include an inability of the industry to conclude a China contract since March 2009, rising inventories and customer ill-will toward producers, he said.

Nievert said he wondered whether the potash industry’s disciplined oligopoly structure and its ability to buffer pricing from supply/demand fundamentals could be weakening.

“Any deterioration in the oligopoly’s structure may have a major impact on industry pricing and volume distribution as well as earnings metrics,” Nievert said.

North American potash producers include Potash Corporation of Saskatchewan (PotashCorp), Mosaic, Agrium and Intrepid Potash.

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By: Frank Zaworski
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