Indian Potash Demand Stabilizing, South America Showing Strength: With Indian demand at 4.3mm tonnes (vs. Credit Suisse expectation of ~4mm tonnes), the overall volume demand dynamic appears to be evolving favorably in 2013. We remain constructive for a pick-up in yr/yr volumes in areas such as South America and SE Asia to augment the rebound in Indian demand. Overall, we are forecasting potash volumes of ~8.9mm for POT, which should also drive better fixed cost absorption, lowering the average cost per tonne vs. 2012.
Capital Projects on Track, Expansion Program now ~85% Complete: POT has now completed ~85% of its potash expansion program (New Brunswick to begin producing potash in '14; Rocanville set to be completed on schedule by 1H15). As a consequence, POT is well positioned to potentially return a significant amount of capital to shareholders over the next 3 years (barring a deal with ICL). We estimate capex will be reduced by 30%+ percent over the next two years from our 2013 estimate of ~$1.52bln.
POT's Nitrogen Fundamentals Moving in the Right Direction: Geismar is now officially online, which should lead to better cost procurement for both nitric acid and UAN production going forward. Additionally, POT appears confident in its ability to renegotiate its natural gas contracts in T&T to more favorably parallel North American natural gas dynamics, which could present an area of upside surprise over the intermediate term. We would note that even with the absence of a new contract, recent declines in Tampa ammonia pricing should act as a net positive for input cost improvements for the balance of 2013.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
