דו"ח אנליסטי קצר שהגיע אלי במייל
Compass Minerals CMP and PotashCorp POT
We are placing our fair value estimates for the potash producers under review on news that Uralkali is leaving the cartel-like Belarus Potash Company.
We are likely to reduce our long-term potash price assumption and our fair value estimates for the producers. Our coverage includes PotashCorp, Mosaic MOS, Agrium AGU, Intrepid Potash IPI, K+S, SQM SQM, and Compass Minerals.
We will also reconsider our wide economic moat ratings for PotashCorp and Compass Minerals and our narrow moat ratings for SQM and Intrepid Potash, as this announcement tests our confidence in the firms' ability to generate economic profits decades into the future.
Our current long-term potash price assumption is $375 per metric ton at the typical plant gate in Saskatchewan.
The power of the two potash cartels is part of the basis for our price assumption resting above marginal cost of production. The top six potash producers control more than 80% of global production capacity.
The top four producers belong to one of two large marketing organizations that negotiate contracts and pricing for their members, further consolidating the industry and decision-making within it.
Canpotex, the Canadian potash marketing arm, includes PotashCorp, Mosaic, and Agrium, while Belarus Potash Company is home to major European producers Belaruskali and Uralkali (which acquired Silvinit in 2010).
The oligopolistic nature of the industry has led to more rational pricing and production decisions. However, it now looks as if rivalry within the industry will increase.
We estimate that marginal costs of production are roughly $250 per metric ton. However, we may not lower our long-term price assumption all the way to $250. For one, potash has utility for farmers at prices well above $250. Further, Uralkali's announcement should scare producers contemplating both greenfield and brownfield capacity expansions.
Uralkali's move may result in potash supply being more constrained long term than what would have otherwise been the case. While it's mere speculation on our part, perhaps Uralkali's announcement is intended to do just that.
One way to prevent unwanted guests at the party of monopolylike pricing power is to shout, "Party's over!"
