Credit Suisse voiced a "negative view" on shares in European fertilizer groups, cutting its hopes for PhosAgro stock for a second time within a month, as it restated expectations of falling phosphate and potash prices.
The bank said it was maintaining a "cautious" outlook on shares in fertilizer groups, given the prospect of price weakness stemming from the break-up in July of the Belarusian Potash Company cartel by Uralkali, which cautioned of potash values potentially falling some 25% below $300 a tonne.
The bank forecast potash prices falling to $300 a tonne, on a cfr basis, on contracts, but retaining more strength on spot markets, dropping to $350 a tonne.
This decline bodes ill for phosphate markets, given that prices of the nutrient have rarely held a premium to potash of more than $100 a tonne.
Indeed, coupled with a weak rupee, the decline in potash values is "likely to put pressure on purchases" by India, the top phosphate importer, weakening values of this nutrient too.
'Further downside is likely'
The European fertilizer sector "will not see commodity price increases for the next six months, while further downside is likely, especially for potash", Credit Suisse said.
And even if potash prices did not fall as far as the bank forecast, that would "demand suppliers to be less aggressive than currently being planned on sales volumes, with the overall positive effect on profitability being marginal".
The bank restated an "underperform" rating for London-traded depositary receipts (a proxy for shares) in Russia's Uralkali, with a price target of $15.00, and kept at "neutral" its recommendation on stock in Israel-based ICL, with a price target of 30.00 shekels.
It lowered to $8.30 its price target for PhosAgro's London-listed depositary receipts from $9.00, following a downgrade from $15.00 on August 19.
PhosAgro receipts stood at $9.455 in morning deals in London, while ICL shares were down 0.2% in Tel Aviv at 27.55 shekels.
Depositary receipts in Uralkali - on which Moscow broker UralSib retained a "hold" rating on Wednesday - with a price target of $26.00, stood down 1.2% at $27.93.
'Some sort of stabilisation'
The comments follow a second quarter reporting season in which investors have focused on insight into potash pricing since Uralkali's announcement in late July of its exit from BPC.
Oleg Petrov, the Uralkali head of sales and marketing, earlier this week, as the group unveiled a drop in earnings, said that in the US, the decline in prices appears to have "stopped" at about $385 a tonne, on an FOB basis.
"We see some sort of stabilisation in the market," he told investors.
'Very close to the bottom'
However, in Asia, he said that buyers in countries such as Indonesia and Malaysia "are mostly waiting and watching how the conflict between suppliers will develop".
And on China, Mr Petrov said that is appeared "unlikely" that the world's top potash importing country would sign a fresh import deal "within the coming months".
"We expect that a good depletion of inventory will take place," leaving China "ready for a good contract in 2014".
On pricing, "there is some sort of feeling" that a domestic level of about 2,000 yuan ($327) a tonne, "if not a bottom, that most likely is very close to the bottom", he said.
He added that he could not rule out potash market prices falling to $300 a tonne, but that such a level "was not sustainable".
"Theoretically the price may go down to the lowest cost producer level, which is actually around those numbers," he told investors.