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Monday, February 04, 2008 9:08:05 PM
German potash gains from demand for grain, biofuel
Thu Jan 31, 2008 6:09am EST
By Mantik Kusjanto
NEUHOF-ELLERS, Germany, Jan 31 (Reuters) - The huge and nearly empty warehouse that Germany's K+S (SDFG.DE: Quote, Profile, Research) maintains near its mine here shows how the world's fourth-largest potash maker is well placed to weather a global economic downturn.
Demand for the key fertiliser ingredient is so great that supplies, hauled from deep underground, are shipped out before they have to be stored at its 100,000-tonne storage building.
"We are operating near full capacity," said Dieter Friedrich, manager of the Neuhof-Ellers plant, one of six potash mines in Germany owned by K+S, which produces nearly 7 million tonnes a year, 13 percent of global supply.
"Potash is shipped fresh out of production," said the 58-year-old mining engineer who has worked for K+S for 29 years.
Prices in commodities such as wheat, corn and soy are on the rise with fertilisers the likely beneficiaries of strong demand for food and biofuel as grain stocks dwindle.
The up-cycle started in 2004 and has strained producers' capacity, leading to a series of price hikes in potash, the rarest of three key plant nutrients -- nitrogen and phosphates being the others.
At the Neuhof-Ellers plant, K+S is extracting potash from 600 to 700 metres below the Fulda Gap, in the heart of Germany.
Canada, Russia, Belarus and Germany control more than three-quarters of the globe's potash reserves.
Like rivals Potash Corp of Saskatchewan (POT.TO: Quote, Profile, Research) and Russia's Uralkali URKA.RTS and Belaruskali, K+S is rushing to capture the global frenzy for potash. Analysts say producers still have sufficient pricing power with potash supply so tight.
Potash, including magnesium, forms more than 40 percent of group sales and less than 60 percent of operating profit.
K+S, which counts among top shareholders chemicals group BASF (BASF.DE: Quote, Profile, Research) and Russian tycoon Andrej Melnichenko, is the world's second-largest salt producer after China National Salt.
POTASH PRICES
K+S is charging record prices of 320 euros ($475.8) per tonne for granular grade potash, up 30 euros from November.
"The industry seems to have only one direction now: up," said Stephan Thomas, fund manager at Frankfurt Trust. "The only thing is ... valuation is a bit high. That restrains us from increasing ... exposure. That's the price for a growth story."
K+S shares trade at 18 times this year's estimated earnings, compared with the pan-European DJ chemicals sector's average of 14 times, according to Reuters data. Potash Corp, the world's top potash player, and Uralkali both trade at 20 times.
While broader markets are reeling from U.S. recession fears -- the chemicals sector fell 12 percent this month -- K+S rose 5 percent. The stock was down 0.2 percent at 166.4 euros at 0815 GMT on Thursday.
K+S is worth about 7 billion euros, up from 800 million in 2002 thanks to rising agricultural prices.
Shrugging off market fears, Patrick Heffer, executive secretary of the International Fertiliser Industry Association, told Reuters the impact of a U.S. recession is "very limited".
"In view of the current tight cereal and oilseed market conditions at the global level, there will be a need to further increase fertiliser use. In that context, even a worldwide recession would have a limited impact," Heffer said.
Dresdner Kleinwort analysts Saul Rans and Georg Remshagen were also upbeat, keeping a buy rating for K+S with 200 euros as their price target, up from 143 euros.
"We believe that the market is already in deficit by 1 million tonnes and we foresee at most 4 to 5 percent brownfield capacity expansion in 2008 to 2009," they said in a report.
Betting on prolonged strong prices, some investors have ignored the impact of the falling dollar to earnings, which had forced the company to issue three profit warnings last year.
Thu Jan 31, 2008 6:09am EST
By Mantik Kusjanto
NEUHOF-ELLERS, Germany, Jan 31 (Reuters) - The huge and nearly empty warehouse that Germany's K+S (SDFG.DE: Quote, Profile, Research) maintains near its mine here shows how the world's fourth-largest potash maker is well placed to weather a global economic downturn.
Demand for the key fertiliser ingredient is so great that supplies, hauled from deep underground, are shipped out before they have to be stored at its 100,000-tonne storage building.
"We are operating near full capacity," said Dieter Friedrich, manager of the Neuhof-Ellers plant, one of six potash mines in Germany owned by K+S, which produces nearly 7 million tonnes a year, 13 percent of global supply.
"Potash is shipped fresh out of production," said the 58-year-old mining engineer who has worked for K+S for 29 years.
Prices in commodities such as wheat, corn and soy are on the rise with fertilisers the likely beneficiaries of strong demand for food and biofuel as grain stocks dwindle.
The up-cycle started in 2004 and has strained producers' capacity, leading to a series of price hikes in potash, the rarest of three key plant nutrients -- nitrogen and phosphates being the others.
At the Neuhof-Ellers plant, K+S is extracting potash from 600 to 700 metres below the Fulda Gap, in the heart of Germany.
Canada, Russia, Belarus and Germany control more than three-quarters of the globe's potash reserves.
Like rivals Potash Corp of Saskatchewan (POT.TO: Quote, Profile, Research) and Russia's Uralkali URKA.RTS and Belaruskali, K+S is rushing to capture the global frenzy for potash. Analysts say producers still have sufficient pricing power with potash supply so tight.
Potash, including magnesium, forms more than 40 percent of group sales and less than 60 percent of operating profit.
K+S, which counts among top shareholders chemicals group BASF (BASF.DE: Quote, Profile, Research) and Russian tycoon Andrej Melnichenko, is the world's second-largest salt producer after China National Salt.
POTASH PRICES
K+S is charging record prices of 320 euros ($475.8) per tonne for granular grade potash, up 30 euros from November.
"The industry seems to have only one direction now: up," said Stephan Thomas, fund manager at Frankfurt Trust. "The only thing is ... valuation is a bit high. That restrains us from increasing ... exposure. That's the price for a growth story."
K+S shares trade at 18 times this year's estimated earnings, compared with the pan-European DJ chemicals sector's average of 14 times, according to Reuters data. Potash Corp, the world's top potash player, and Uralkali both trade at 20 times.
While broader markets are reeling from U.S. recession fears -- the chemicals sector fell 12 percent this month -- K+S rose 5 percent. The stock was down 0.2 percent at 166.4 euros at 0815 GMT on Thursday.
K+S is worth about 7 billion euros, up from 800 million in 2002 thanks to rising agricultural prices.
Shrugging off market fears, Patrick Heffer, executive secretary of the International Fertiliser Industry Association, told Reuters the impact of a U.S. recession is "very limited".
"In view of the current tight cereal and oilseed market conditions at the global level, there will be a need to further increase fertiliser use. In that context, even a worldwide recession would have a limited impact," Heffer said.
Dresdner Kleinwort analysts Saul Rans and Georg Remshagen were also upbeat, keeping a buy rating for K+S with 200 euros as their price target, up from 143 euros.
"We believe that the market is already in deficit by 1 million tonnes and we foresee at most 4 to 5 percent brownfield capacity expansion in 2008 to 2009," they said in a report.
Betting on prolonged strong prices, some investors have ignored the impact of the falling dollar to earnings, which had forced the company to issue three profit warnings last year.
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