Skip to Content
Stock Analyst Update

Potash Producers Rally Thanks to China

China has agreed to higher potash prices in 2019, but we continue to forecast that prices will average $300 per metric ton over the next year.

On Sept. 17, the Belarusian Telegraph Agency reported that Belarus Potash Co., or BPC, agreed to sell potash to China at $290 per metric ton during the 2018-19 potash year through June 2019. The agreement represents a $60 per metric ton increase over 2017-18 potash contract prices. Last month, BPC agreed to the same $290 per metric ton price with India. The market reacted favorably to the latest news, sending potash producer shares up 3%-5% at the time of writing.

We continue to forecast that potash prices will average $300 per metric ton over the next year, up from $270 in 2018, as new supply delays from  K+S (SDF) and EuroChem and lower production from K+S and  SQM (SQM) will support prices into next year. With our outlook unchanged, we maintain our narrow-moat  Nutrien (NTR) fair estimates of $65 per share and CAD 85 per share. Similarly, we maintain our fair value estimates of $35 per share for no-moat  Mosaic (MOS) , EUR 18 per share for no-moat K+S, and $55 per share for narrow-moat SQM.

Of the potash producers we cover, Nutrien appears the most undervalued due to our potash outlook, trading around 11% below our fair value estimate. Going forward, Nutrien should benefit from higher prices and lower unit productions costs, as a result of shifting production to lower-cost potash mines and reducing back-office expenses after the merger between PotashCorp and Agrium that created Nutrien. We also view SQM as undervalued, but our outlook is largely due to our lithium forecast, which is a bigger driver for SQM than potash.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Seth Goldstein does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.