Potash prices have been declining for a number of years and observers agree that the situation is unlikely to improve anytime soon. In fact, the opposite seems to be the case with latest forecasts suggesting that the situation might deteriorate significantly. The continuous slump in prices negatively affects producers such as Potash Corporation of Saskatchewan Inc, the world’s largest potash producer.
Some analysts predict that next year an average potash price per ton will be only US$254, down from more than US$300 today.Ongoing weakness in agricultural commodities and depreciating currencies in emerging markets keep dragging the prices down. Global potash demand is expected to decline by 4.4 million tons next year. The biggest fall will likely take place in the biggest markets – India and Brazil – and also in Southeast Asia. Moreover, because China itself has immense potash stock, the balance of pricing is expected to shift towards the consumers and away from the sellers, which could bring about a collapse of the potash pricing system.
The producers are currently not motivated enough toregulate supply to such a degree so as to bring it in line with demand. According to Darya Kovalska of Macquarie Group, a global investment banking firm, the current prices are still well above the cost curve, so the incentive to cut supply is not there.“The outlook for the potash market remains very pessimistic,” she added. In response to the current environment, Macquarie Group downgraded the stock of Potash Corp to underperform from neutral, and decreasedthe price target by 31 per cent to US$22 per share. The group added that the stock had the potential to perform better than predicted if investors support Potash Corp.’s proposal to buy German rival K+S AG.
