- Shares of Potash Corp. of Saskatchewan Inc. climbed in Monday premarket trading, after a Banc of America Securities analyst upgraded the shares of the fertilizer company and said a major competitor may exit the market, which could lead to higher potash prices.
- Analyst Marshall E. Reid said Silvinit, a Russian potash producer, may be forced to stop shipping potash when it loses a main rail line.
- Reid said Silvinit is likely to lose its only rail line in the next few weeks, which will take the company out of the market, at least temporarily. Reid said a new rail line will be built, but that will take at least four months. Silvinit ships all its potash on one line.
- "The potash market is already very tight," Reid wrote in a client note. "Therefore, a major supply disruption ahead of the spring planting season in the northern hemisphere is likely to send a shock wave through the market, leading to a surge in prices."
- Reid, who upgraded Potash to "Buy" from "Neutral," said Potash is poised to gain the most from higher prices, given its capacity and market leadership position.
- If Silvinit steps out of the market, Reid said Potash will likely become a main supplier to China before its spring planting season. China is Silvinit's biggest customer, Reid said.
Takeaway: I could care less about the upgrade, I am more interested in the actual news - this gets more interesting by the day - Silvinit ships all its potash on one line? Ouch. Potash has rumbled well over 20% since it dipped below $100 on the 'fake out' move post earnings so I am not sure if it can continue going straight up in such a short span but clearly the next few quarters look wonderful and I'll be trying to add on dips as its still a sub 2% position. Of course this will benefit Mosaic as well, but again both stocks have had massive runs in just 2 sessions so I'd expect some near term pullback.
Long both in fund; long both in personal account
