Global fertilizer deliveries are poised to show across-the-board growth for the first time in nearly two years, supported by stronger crop prices, Credit Suisse has said.

The investment bank, raising its target prices for shares in nitrogen giant Yara International and Saudi Arabian Fertilizer Company, forecast that annual growth in fertilizer deliveries would exceed historic levels of 2-5% by a "considerable margin" into 2011.

The return to year-on-year growth, which had already kicked off for nitrogen in the July-to-September quarter, would be supported by the better returns for farmers implied by firmer crops futures, especially prices of "heavy-fertilizer-consuming corn and wheat".

Improved credit availability for farmers, and the need by suppliers to replenish depleted inventories, would also support demand.

Potash uncertainties 

However, while the Credit Suisse report painted a rosy picture for nitrogen and phosphate markets, raising price forecasts and flagging the prospect of further upgrades, it highlighted the uncertainty hanging over a potash recovery.

While the bank said it expected the start of a "robust volume recovery" no later than the April-to-June quarter of 2010, it highlighted the risk of delays to a China deal.

"The longer it takes to establish a price floor, the longer it will take for demand to recover, in turn increasing the downside risk to our [forecasts]," the note said.

Potash deliveries would rise by 2% in the current quarter, compared with a 38% increase in nitrogen shipments and 48% for phosphates, the first across-the-board increase since the first quarter of last year.

For 2010, the bank forecast "strong" demand for nitrogen and phosphate "based on favourable prices relative to grain prices and we believe from the buyers perspective a perceived greater upside than downside price risk".

Share implications

Separately, Credit Suisse raised its target price on Saudi Arabian Fertilizer Company (Safco) shares by 5 riyals to 125 riyals.

The group "looks attractive on a dividend yield basis, of 5.9% estimated in 2010, and appears as a defensive play ahead of highly uncertain fourth-quarter results of the Saudi banking sector".

The target price on shares in Norway's Yara was lifted by NKr35 to NKr295, based on the improved prospects for the nitrogen market and the benefit of low prices of natural gas, a key input cost.

High enough?

The Yara upgrade comes a day after UBS, the rival investment bank, cut its rating on the nitrogen group's shares from, "buy" to "neutral", with a price target of NKr260, following a strong rally in the shares over since early November. 

"The Yara share price has increased 41% in one month, significantly outperforming the chemical sector," UBS analyst Joe Dewhurst said.

"We continue to like the underlying exposure of Yara to agri recovery and see it as an attractive inflation hedge within chemicals. However, at these levels we struggle to find considerable upside."

Safco stock closed down 1.2% at 119.75 riyals, with Yara shares ending down 1.5% at NKr250.70 in Oslo.