Potash Producers Rally Thanks to China
China has agreed to higher potash prices in 2019, but we continue to forecast that prices will average $300 per metric ton over the next year.
On Sept. 17, the Belarusian Telegraph Agency reported that Belarus Potash Co., or BPC, agreed to sell potash to China at $290 per metric ton during the 2018-19 potash year through June 2019. The agreement represents a $60 per metric ton increase over 2017-18 potash contract prices. Last month, BPC agreed to the same $290 per metric ton price with India. The market reacted favorably to the latest news, sending potash producer shares up 3%-5% at the time of writing.
We continue to forecast that potash prices will average $300 per metric ton over the next year, up from $270 in 2018, as new supply delays from
Of the potash producers we cover, Nutrien appears the most undervalued due to our potash outlook, trading around 11% below our fair value estimate. Going forward, Nutrien should benefit from higher prices and lower unit productions costs, as a result of shifting production to lower-cost potash mines and reducing back-office expenses after the merger between PotashCorp and Agrium that created Nutrien. We also view SQM as undervalued, but our outlook is largely due to our lithium forecast, which is a bigger driver for SQM than potash.
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