BHP Bid, Russian Takeovers Show Potash Bottomed, Fertecon Says

BHP Bid, Russian Takeovers Show Potash Bottomed, Fertecon
A Potash Corp. of Saskatchewan Inc. nitrogen and phosphate processing facility stands in Geismar, Louisiana. Photographer: Derick E. Hingle/Bloomberg

BHP Billiton Ltd.’s $40 billion bid for Potash Corp. of Saskatchewan Inc. and acquisitions in the Russian industry signal the potash market bottomed after prices slumped more than 50 percent, consultant Fertecon Ltd. said.

Potash Corp. has about 20 percent of global output capacity of the commodity, one of the three main fertilizer ingredients. A potential combination of Russia’s OAO Silvinit and OAO Uralkali would manage about 16 percent of capacity, according to Salman Partners Inc. Saskatchewan potash prices fell to $359 a metric ton in the first quarter, from $774 a year earlier.

“The view is that we are at the bottom of the market and the cycle and now is the time to invest in companies,” said Barrie Bain, director of Tunbridge Wells, England-based Fertecon, whose clients have included ConAgra Foods Inc., Goldman Sachs Group Inc. and Exxon Mobil Corp. “Anybody who wants to get into potash is thinking now is the time to do it because it’s going to be difficult to get in otherwise.”

Potash consumption slumped last year after crop prices plunged, with wheat traded in Chicago, a global benchmark, falling to $4.255 a bushel in June from $13.495 in February 2008. Demand for the commodity, mined from underground deposits left by evaporated seas, will rebound to 50 million tons this year from less than 30 million tons in 2009, Potash Corp. Chief Executive Officer Bill Doyle said in a conference call Aug. 17.

Saskatchewan potash prices rallied to $374 a ton in the second quarter, according to Salman Partners. Wheat rebounded as much as 90 percent since June as Russia’s worst drought in at least a half century, flooding in Canada and parched fields in Kazakhstan and the European Union ruined crops. Doyle forecast that potash demand may expand again to 55 million tons in 2011.

Potash Production

Reserves and production of potash, used to describe several compounds containing potassium, is concentrated in 12 countries, according to Salman Partners. The potassium aids stalk strength in plants. Canada, Russia and Belarus account for 60 percent of global capacity.

“BHP is attracted to the potash market by the fact it’s the market with a relatively few producers, a good record of a longer-term price stability,” Bain said. “It might be better to buy than to build. The market will continue to be dominated by existing producers.”

The bid from BHP, based in Melbourne, follows other acquisitions in the industry. Coal investor Anatoly Skurov and lawmaker Zelimkhan Mutsoev bought a combined 44 percent share in Silvinit, Russia’s largest potash producer, a person familiar with the sale said Aug. 13.

‘Greater Concentration’

The two are partners of Suleiman Kerimov, who owns 25 percent of the company, the Vedomosti newspaper reported Aug. 16. Kerimov and other partners acquired 53 percent of rival producer Uralkali in June. Kerimov may plan to merge the two companies, Troika Dialog said in a report Aug. 16. Silvinit appointed former Uralkali head Vladislav Baumgertner as acting chief executive officer yesterday.

“With the possibility in Russia of a merger between Silvinit and Uralkali, that means even greater concentration,” Fertecon’s Bain said.

Shares of Potash Corp., based in Saskatoon, Saskatchewan, jumped 28 percent on Aug. 17, when it announced BHP’s $130-a-share approach. The stock added another 3.3 percent yesterday, reaching $147.93 in New York trading.

Potash Corp., which rejected BHP’s offer, may only accept a proposal that’s “significantly higher,” Bain said.

“Potash Corp. is very much seen as the best asset in the potash sector, and the fact that BHP is going after it might give other companies a pause for thought that this is an opportunity they don’t want to miss,” he said.

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