TD Economics: Cautious Optimism for Potash Amidst Uncertainty

It might be awhile before the market sees a potash industry recovery. However, according to a special report from TD Economics, the road to recovery exists somewhere amidst the haze of uncertainty. 

Potash prices crashed in 2013 when Russia’s Uralkali (MCX:URKA) severed its alliance with Belarusian Potash Company (BPC). However, now that the dust has settled and hints of a reconciliation between Belaruskali and Uralkali look to be on the horizon, the bank holds a “cautiously optimistic” near-term potash outlook.

Given the slight optimism, it is only natural that the firm expects prices to stabilize. Indeed, it sees them steadying at the current level of US$305 to $320 per tonne over the next two years; however, that forecast still calls for some degree of volatility.

“We expect international potash prices will average close to the current level of US$305-320 per tonne, cost and freight included (CFR) over the next two years. That said, the profile will be bumpy and volatile. This forecast is in lie with medium-term supply-demand fundamentals including the transition to more balanced diets, urbanization and a push to increase crop yields due to less arable land,” Sonya Gulati, senior economist at TD, wrote.

Like any volatile market, there are both upside and downside risks. The bank sees two main catalysts as positive for potash prices:

1. A BPC reconciliation: Already the market is seeing hints that Uralkali and Belaruskali could be working out their differences. If that happens, concerns about a deluge in global potash supply would ebb.
2. Production rising or falling more than expected.

TD sees just as many scenarios that could threaten current prices:

1. Potash buyers could hold out on making purchases in hopes of securing lower prices.
2. Producers adding more potash capacity could widen the gap between supply and demand.

For the time being, it looks like potash is fairly well supported. Developing countries will be increasing their demand for the fertilizer, and that will reflect nicely on the sector. Furthermore, rising global population will also increase demand.

Gulati does see a wild card in the near-term, however, and that is potash supply. In her view, the additional supply expected to come online from new projects over the course of the next few years could put a cap on the market’s upside potential. But overall, the expectation is that stability — albeit with an undercurrent of volatility — is on the horizon.

Company news

IC Potash (TSX:ICP,OTCQX:ICPTF) published a notice that the final Environmental Impact Statement for its New Mexico-based Ochoa sulfate of potash project is available. Sidney Himmel, president and CEO of the company, said in a company statement that the “[r]eceipt of the final Environmental Impact Statement is the latest accomplishment on our path to operations.”

The company is now awaiting a published Record of Decision from the US Bureau of Land Management.

Securities Disclosure: I, Vivien Diniz, hold no direct investment interest in any company mentioned in this article.