Morningstar | Potash Producers Rally as China Agrees to Higher Potash Prices in 2019; Our Outlook Remains Intact
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 and EuroChem and lower production from K+S and SQM will support prices into next year. With our outlook unchanged, we maintain our narrow-moat Nutrien 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, 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.
Nutrien Ltd is Canada-based crop nutrient producer and distributer of potash, nitrogen and phosphate products for agricultural, industrial and feed customers worldwide. The Company is focused on retail, potash, nitrogen and phosphate mining and processing operations. The Company's retail operations serve growers in a number of countries across the United States, Canada, South Africa, Australia and South America. The Company operates six potash mines in Saskatchewan and has a mine in New Brunswick in care-and-maintenance mode. The Company operates integrated phosphate mining and processing facilities, as well as a number of smaller upgrading plants in the United States.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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