Goldman Sachs upbeat on potash prices - for now

Goldman Sachs raised its forecast for potash prices, but cautioned over the threat of low crop prices in limiting prospects for further gains, even as Agrium cautioned again over profits, citing fertilizer market weakness.

Goldman Sachs hiked by $37 a tonne to $318 a tonne its forecast for potash prices this year, as measured in the Brazilian market, on a CFR basis.

While the upgrade came the day after China, the top potash importer, signed a deal to buy the nutrient at $305 a tonne, a factor many commentators saw as putting a floor into the market, Goldman cited a potential reformation of the Belarusian Potash Company cartel as behind its upgrade.

It was July's break-up of BPC, which controlled more than 40% of world potash trade, which triggered a decline in values from levels of $400 a tonne or more, as buyers held-off in expectation of continued price falls.

'Pent-up demand'

Goldman acknowledged that "no formal decision has been announced to date" on renewed co-operation between BPC's former members Belarus-based Belaruskali and Russia's Uralkali.

Goldman Sachs potash price forecasts

2017: $340 a tonne

2016: $320 a tonne

2015: $310 a tonne

2014: $318 a tonne

2013: $405 a tonne

2012: $513 a tonne

Furthermore, "a potential joint venture may not be as effective in managing output in a depressed market as BPC was able to do in the past," the bank said.

Nonetheless, a potential reconciliation, and efforts by North American PotashCorp to curtail production, "signal that a degree of producer discipline has returned to the potash market".

Growing expectations that prices may recover from the first quarter of this year onwards "are likely to encourage some of the pent-up demand from the second half of 2013 to come forward".

'Temporary' reprieve

However, a pick-up in sales volumes would prove "temporary", and price upside "limited".

"The bearish outlook for crop prices is not conducive to high levels of fertilizer use," said Goldman, which has issued downbeat outlooks for corn, soybean and wheat prices.

"Therefore, potash demand may ease again in the second half of 2014 after a brief rally."

Indeed, further action by potash groups to mothball capacity and expansion plans is needed to bring sustained gains in prices, the bank said, forecasting prices averaging $310 a tonne in 2015.

Agrium caution

The comments came shortly after Agrium extended a run of downbeat trading updates by North American potash groups, saying that its earnings from continuing operations for the fourth quarter of 2013 would come in at the bottom of a range of $0.80-1.25 a share it had guided to.

Investors have forecast a figure of $1.07 a share.

The guidance is "primarily due to lower-than-expected sales prices" achieved for fertilizers by Agrium's wholesale division, a major potash producer, as well as "lower-than-expected UAN [urea ammonium nitrate] and domestic potash sales volumes", the group said.

The statement follows Agrium's release in November of below-forecast earnings, and of a profits warning in September.

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