US investment firm maintains PotashCorp hold rating

31 August 2012 17:09  [Source: ICIS news]

HOUSTON (ICIS)--Announced production cutbacks and possible reduced fertilizer applications in the US this autumn prompted an investment analyst on Friday to maintain a hold rating on shares of Canadian fertilizer maker PotashCorp.

"Entering fall, we see farmer hesitation surrounding nutrient application due to the current US drought," said Charles Neivert, an analyst with New York-based investment research firm Dahlman Rose, in an earnings update report.

"In addition, India and China, perhaps sensing a weakening market, may opt for lower [import] volumes or greater price concessions. As such, we retain our hold rating," said Charles Neivert.

Additionally, Neivert said the firm's contacts indicate that some fertilizer product for autumn application is already in place or ordered and additional sales for the second half of 2012 may be weaker than expected in some nutrients.

Current potash inventories of 2.5m tonnes versus the five-year average of 1.9m tonnes should have a dampening effect on price in the second half of the year, said Neivert.

PotashCorp recently announced a four-week shutdown of its Lanigan mine and Dahlman Rose sees the move as a first step toward correcting a supply/demand imbalance.

The firm expects to see further potash production curtailments, and possibly further shutdowns, being needed.

"Though the nitrogen segment is experiencing very low production costs as a result of low natural gas prices, we see costs of production increasing for potash and phosphate," Neivert said.

"Demand uncertainty, as well as announced shutdowns to correct supply/demand imbalances, should keep the per-tonne production cost above normal levels especially for potash in fiscal year 2012," he said.

By: Frank Zaworski
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