28 June 2011 15:12 [Source: ICIS news]
LONDON (ICIS)--Erste Group Bank has placed a "sell" recommendation on the stock of Poland's second-largest fertilizer producer, Zaklady Chemiczne Police (ZChP), because of its exposure to feedstock fluctuations, the bank said on Tuesday.
“Multi-component fertilizer markets recorded sound growth since our last recommendation (Accumulate). However, expectations of feedstock cost growth should hit ZChP profitability in coming months,” said Erste analyst Tomasz Kasowicz.
“Major feedstock costs (potassium chloride, phosphate rock, gas) accounts for approximately 40% of sales. Without its own upstream segment, [ZChP] is exposed to feedstock cost fluctuations,” he added.
In the second quarter of this year, compared with the first quarter of 2011, potassium chloride and phosphate rock prices rose by 11% and 15%, respectively, while fertilizer prices recorded around a 2–3% quarter-on-quarter increase, Kasowicz said.
“We thus think that, from [the second quarter of 2011, ZChP] will report worsening results,” he added.
The price relationship between cost pure nutrients (nitrogen, phosphorous and potassium, or NPK) and grain (wheat) prices started to worsen in June, compared with May, Kasowicz said.
“Such a situation is more harmful for multi-component fertilizer makers than for nitrogen fertilizer producers, in our view, as nutrients PK are less leachable than the nitrogen (N),” he added.
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