Potash Producer Stocks Update
US President Donald Trump announced on his social media platform the US is working on a deal to purchase potash from Belarus. Shares of potash producers Nutrien and Mosaic fell on the news.
Why it matters: Over 90% of US potash demand comes from imports, the vast majority of which come from Canada. By contrast, less than 5% of potash imports come from Belarus. The two largest Canadian potash producers are Nutrien and Mosaic.
- If this occurs, we expect a fairly quick trade flow shift in potash. We estimate over 60% of global potash supply is controlled by Nutrien, Mosaic, Belarusian state-owned producer Belaruskali, and Russian state-owned producer Uralkali combined.
- Belaruskali exporting more to the US would likely mean lower exports to other countries, such as Brazil, India, and China. As a result, we would expect Canpotex, the Nutrien and Mosaic potash export joint venture, to export more volumes to these countries, leading to no net supply changes.
The bottom line: We maintain our USD 80/C$112 fair value estimates for narrow-moat Nutrien and our USD 35 fair value estimate for no-moat Mosaic. We view Nutrien shares as fairly valued with the stock trading in 3-star territory and Mosaic as undervalued, with shares in 4-star territory.
- We do not see any changes in global demand or supply from a US potash import deal with Belarus, so we don’t see a major impact on prices, just trade flow shifts.
- The US has historically purchased potash at spot pricing, in contrast to China and India, who buy potash on a fixed contract price. If the US begins to buy potash at a contract price, it may receive a slightly lower price versus the spot market, but spot and contract prices tend to move together.
