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Stock Strategist

We Expect Big Volume Gains From PotashCorp in the Long Run

The potash market's in flux now, but demand growth will work in the company's favor.

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While  Potash Corporation of Saskatchewan's (POT) fourth-quarter results generally met our expectations, the company's guidance for 2014 fell below our forecast. Potash volume is the primary driver of the discrepancy. We were expecting a sharper bounce-back in potash volume, as uncertainty in the potash markets seems to be abating and buyers are returning to more normal purchasing patterns. While the market has settled down somewhat with new China contracts from Canpotex and Uralkali, PotashCorp is predicting its potash volume will grow only 1%-6% in 2014. We were expecting a growth rate in the double digits, even given the company's December announcement that it would temporarily cut operating capacity to reduce costs.

Despite a potash market that remains in flux in the near term, we still think PotashCorp's volume is set to expand significantly over the long run as potash demand in emerging markets grows and the company fills newly installed brownfield capacity. We forecast long-term sales volume of more than 14 million metric tons per year, compared with our revised 2014 forecast of about 8.4 million metric tons.

Jeffrey Stafford does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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