July 10, 2012
Rabobank puts stops on cogent fertiliser talk
Foreseeing "limited upside potential for global nutrient markets" for now, Rabobank casted doubt on ideas of a fertiliser market revival which have boosted shares in giants such as Agrium and PotashCorp.
Prospects for rises in nitrogen prices look particularly poor, given the boost to supplies from the opening of the annual low-tax window for Chinese urea exports, which has historically seen shipments peak in August and September, and from start of shipments from Algeria''s Sofert plant.
Meanwhile, demand from South America has proved slow, and could remain so if growers decide to plant soy rather than nutrient-hungry corn ahead of the early-2013 harvest, Rabobank said.
"We expect ample supply to remain in the urea market during the July-September quarter, and anticipate persistent pressure on prices," which in the US have already fallen some 40% from spring highs of about US$700 a short tonne.
Market weakness was also evident in a late-June tender by Pakistan for urea which was "massively oversubscribed", and attracted offers for the nutrient priced as low as US$412 a tonne, down more than US$100 a tonne from May values.
However, Rabobank was also tepid on the outlook for potash prices, offering a "neutral-to-negative" forecast, thanks largely to depressed demand in India, where the weakness of the rupee and a reduction in government subsidy have sent local prices soaring.
"Shipments of approximately six million tonnes of potash purchased at the end of last year continue to land at Indian ports," the bank said.
"Nevertheless, market expectations suggest that the local market will not even reach four million tonnes in 2012 due to weak demand by the Indian growers."
Furthermore, Brazilian buyers, holding relatively high inventories, have managed to stave off price rises.
"Despite several attempts, sellers have so far been unsuccessful in securing higher prices for exports to Brazil."
Phosphates were the most likely of the main nutrients to see price rises, thanks to relatively small inventories, and signs of higher competition between buyers. China''s exporters, for instance, "are currently achieving higher returns in South East Asian markets such as Vietnam and Thailand" than in India, traditionally a major buyer.
"The pricing outlook for phosphate fertilisers in the third quarter suggest more upside potential than downside risk," Rabobank said, while saying that "upward pressure on phosphate prices will be somewhat limited" by extra Middle East capacity.
The comments follow a strong period for fertiliser shares, on ideas that the soaring price of corn, up nearly 30% since the end of May on fears for the impact of dryness on US yields, and which has lifted values of other crops too, will promote demand from farmers keen to maximise yields.
However, the extent of the gains has raised questions over whether shares are approaching fair value, with Fraser Mackenzie on Thursday (July 5) cutting to "market perform", from "buy" its rating on PotashCorp shares.
On Tuesday (July 3), National Bank Financial raised its targets on Agrium''s New York-listed shares to US$97.50 from US$71, and on PotashCorp shares to US$47.50 from US$35.50.