EUR 850.00 For Business Accounts Only

Morningstar | As Mosaic's New Potash Mine Lowers Unit Costs, Stable Potash Prices Will Lead to Higher Profits

Mosaic is a leading producer of phosphate and potash fertilizers, with each commodity contributing roughly 40% of the company’s profits. The balance is derived from the Brazilian fertilizer business. Mosaic’s U.S. phosphate rock mines and Canadian potash assets provide the company with a stable input base for its products. Mosaic will benefit from growing global demand for fertilizer. However, because it sells commodity products, it has no pricing power and operates in a volatile industry.Mosaic is the world's largest producer of phosphate and has expanded capacity with the purchase of assets from Vale and the development of its Saudi Arabian joint venture with Ma’aden. Mosaic benefits from the vertical integration of its phosphate assets, as it mines its own phosphate rock, the key feedstock used to produce phosphate fertilizers. Being vertically integrated provides a cost advantage when rock prices are high, as nonintegrated producers must purchase phosphate rock on the open market. Nonintegrated players--which are the marginal producers--generally set phosphate fertilizer prices. Mosaic has benefited from this industry dynamic by operating lower on the industry cost curve. However, over 70% of global phosphate production comes from players that control their own phosphate rock mines, so Mosaic’s vertical integration is not unique.Mosaic is also a top-five potash producer. Potash prices are determined by the marginal cost of production as well. While Mosaic benefits from a cost position well below marginal cost, it currently sits above its Canadian peers on the cost curve due to brine inflow expenses. Mosaic’s cost position is set to improve, however, as the company ramps up production at its new K3 mine at Esterhazy, which will eliminate the brine inflow expenses by the middle of the next decade. We expect potash prices to remain stable over the next few years as production from new greenfield mines is partially offset by mine closures. We forecast 2019 potash prices of roughly $300 per metric ton, which is near our long-term potash price forecast of roughly $310 per metric ton in nominal terms.