Potash Corp shares dip on grain prices, brokerage rating

Wed Jan 4, 2012 1:25pm EST
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By Euan Rocha

TORONTO (Reuters) - Shares of Canadian fertilizer maker Potash Corp (POT.TO: Quote) (POT.N: Quote) fell roughly 2.5 percent on Wednesday after a dip in grain prices and a bearish view from a brokerage firm.

National Bank analyst Robert Winslow initiated coverage of Saskatoon, Saskatchewan-based Potash Corp with an 'underperform' rating on Wednesday, arguing that global potash supply is likely to increase more than demand, hitting prices.

"We envision global potash supply increasing more than demand through 2020, moderating medium-term potash prices and thus Potash Corp's margin and earnings growth," he wrote in a note to clients.

Potash Corp is the world's largest producer of its namesake nutrient and it also owns interests in a number of other global potash market players. Most of its mines are in the western Canadian province of Saskatchewan and together with Mosaic Co (MOS.N: Quote) and Agrium Inc (AGU.TO: Quote), the companies account for roughly a third of potash exports.

Winslow, who has a $39.50 price target on shares of Potash Corp, also said improving global grain inventory levels are likely to keep a lid on grain prices.

Strong grain prices are a key driver of fertilizer demand and a lower prices recently prompted some dealers and farmers to hold off on fertilizer orders in the hope that prices for the macro nutrients - nitrogen, phosphate and potash - would weaken.

The stronger than normal seasonal weakening in potash demand has already prompted Potash Corp to announce shutdowns at two of its facilities in Saskatchewan. The Rocanville shutdown extends from December 25 to February 4, while the shutdown at Lanigan begins on January 8 and will extend until March 3.

Mosaic, the world's largest producer of phosphate-based fertilizers, said last week it would cut its phosphate output, due to weakening prices.   Continued...