Uralkali (URALL, quote) has delivered a conclusive rebuttal to all the fretting we have been hearing about the potash market overheating or even collapsing. China is happy to buy this key fertilizer ingredient at last year’s prices, so everyone else has no choice but to follow Beijing’s lead.
The Russians are the world’s biggest producers of potash and China is the biggest importer, which makes every new supply contract between them a closely watched bellwether for the fertilizer market in general.
This time around, Uralkali — acting as usual through its commercial subsidiary Belarusian Potash — has agreed to sell 400,000 tons of potash to China in the coming quarter at $470 per ton.
At that price, China does not seem to be pushing back on price at all. Last summer, they were paying $470 a ton. There is no palpable indication here of fertilizer buyers cutting back due to lack of interest or ability to pay, unlike 2008 when the potash market effectively crashed.
Beijing seems content with these prices. And India may grouse about the weak rupee making it hard for its farmers to afford potash here, but unless they want to shift to less efficient nitrate or phosphorus fertilizers, they really have to get with the program.
This news should be a very positive catalyst for the entire potash group. We have been banging this table for a while now and most recently got it in front of you after K+S (KPLUY, quote) announced that even the euro zone crisis is unlikely to hurt its results beyond 2012.
As it is, POT is up 13% so far this year, but still 23% below where it was in July before the wheels came off the markets over the summer.
In the long term, these stocks are definitely going places.