Wednesday, December 30, 2009

An Anticipated Near-term Rebound in Demand Bodes Well for Potash Corp.

With control of 22% of global capacity, Potash
Corporation of Saskatchewan is the world's largest potash
producer. The potash market enjoys high barriers to entry,
as economically recoverable potash reserves are scarce
and greenfield expansion requires substantial time, and
physical and financial resources. As demand for potash
grows over the coming years--primarily on the back of
increased potash use in less mature nutrient markets--PCS
is poised to supply the majority of the world's growing
needs by bringing idle capacity on line and investing in
low-cost brownfield expansion projects.

Bulls Say
According to the Potash and Phosphate Institute, potash
application rates in Brazil, China, and India would need
to double to match current rates in developed
agricultural markets. This leaves plenty of room for
demand growth in these rapidly developing

On a global basis, the amount of arable land per person
has been cut in half during the past 50 years. Proper
fertilizer use will be critical to produce enough food for
a growing global population from a finite land base.

Bears Say

PCS is not the only producer capable of bringing
incremental capacity on line. Agrium and Mosaic have
recently announced expansion plans of their own. Any
capacity additions that cannot be immediately absorbed
by the market may harm producers' pricing power.

Many of PCS' competitors are government-owned firms,
where profit is not the primary objective. These
companies may sometimes act irrationally, hurting
returns for the entire industry. (Morningstar)

An Anticipated Near-term Rebound in Demand Bodes Well for Potash Corp.

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