Monday, July 13, 2009

Fertilizer earnings estimates cut after Friday's "deal." (POT, IPI)

AlphaNinja - More fallout (not unexpected) from Friday's potash news. I wrote Friday afternoon about rumors of a Russian firm contracting to sell 850,000 tons of fertilizer ingredient potash to India for prices WAY below what the market anticipated. It would be the equivalent of your neighbor selling his (identical to yours) apartment for $600k when you were about to put yours on the market for $900k.

Intrepid Potash (IPI) and Potash Corp (POT) estimates are being slashed by RBC Capital and Oppenheimer today, as the analysts incorporate the new pricing environment into earnings estimates. Both stocks are down today -->> extra painful to be in the red while the broad market climbs...

"Potash pricing appears poised to rapidly crumble," said Oppenheimer & Co. analyst Edward Yang in a note to investors. He downgraded Intrepid Potash Inc. and Compass Minerals International Inc. to "Underperform" and "Perform," respectively, cut earnings estimates for 2009 and sees sharp profit declines in 2010. He had previously rated both "Outperform."

On Friday, fertilizer industry sources said Russian potash supplier Silvinit had struck a big deal with the major Indian potash importer, said RBC Capital Markets analyst Fai Lee in a research note Monday. Silvinit would sell India about 850,000 tonnes of potash at contract price at $460/tonne through March 2010, he said. That's $165/tonne lower than last year's contract and well below current spot prices of between $700 and $750 a tonne. He now estimates potash prices in 2010 will be $450/tonne, not $500/tonne.

No surprise that Potash credit protection is among the bigger movers today, as its risk of default (while still low) increases. From CMA Datavision:

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