Fertilizer sector set for biggest profits in years on Russia-Ukraine conflict
2022.05.02 19:06
FILE PHOTO: An interior view of the storage warehouse is seen at Nutrien’s Cory potash mine near Saskatoon, Saskatchewan, Canada August 12, 2019. REUTERS/Nayan Sthankiya/File Photo
By Ruhi Soni
(Reuters) – Fertilizer makers are set to post their biggest quarterly profits in years, following a supply squeeze of essential crop nutrients due to the Ukraine crisis, according to analysts.
Top fertilizer makers Nutrien (NYSE:NTR) Ltd, Mosaic Co (NYSE:MOS) and CF Industries (NYSE:CF) are expected to benefit as sanctions on Russia and Belarus, the world’s No. 2 and 3 producers of potash, sent prices of the key fertilizer nutrient to levels not seen since the 2008 food crisis.
“Nutrien, for sure, is going to raise their (earnings) guidance. I’d be shocked if they don’t,” said Joel Jackson, senior analyst at BMO Capital Markets Equity Research.
THE CONTEXT
Prices of potash were already soaring last year on tight supplies after international sanctions on Belarus’ state-owned producer Belaruskali in response to President Alexander Lukashenko’s crackdown against political opponents.
However, events in Ukraine have pushed prices to new highs as Russia is one of the top suppliers of potash and other crop nutrients such as nitrogen, phosphate, urea and ammonia.
Nutrien, the world’s biggest fertilizer maker, said in March it would ramp up its annual potash output by 1 million tonnes to nearly 15 million tonnes in response to the uncertainty of supply from Eastern Europe.
Nutrien may face challenges in finding the labor to ramp up its capacity, Jackson warned.
High fertilizer prices may eventually be partially offset by soaring natural gas prices, particularly for nitrogen-based fertilizer makers such as CF Industries, Morningstar equity analyst Seth Goldstein said.
“For companies like Mosaic and Nutrien that are vertically integrated and mining their own potash, they should feel the cost inflation less than perhaps a CF who still needs to buy U.S. natural gas to make nitrogen.”
Analysts will also look out for comments on demand getting hit due to higher prices. Farmers are already reacting by skimping on fertilizer use, stockpiling for a few years, or switching to manure.
European fertilizer makers this month wowed investors, with Germany’s K+S AG raising its full-year core profit forecast by 40%, while Norway’s Yara International (OTC:YARIY) ASA posted a stronger-than-expected core profit even as it flagged higher natural gas costs.
FUNDAMENTALS
Company
Refinitiv Q1 Refinitiv Q1 EPS
revenue estimate estimate
Nutrien Ltd $7.62 billion $2.56
(up 64% YoY)
Mosaic Co $4.08 billion $2.38
(up 77% YoY)
CF Industries $2.59 billion $4.21
Holdings Inc (up 147% YoY)
WALL STREET SENTIMENT
Company Recommendation Median
Price Target (NYSE:TGT)
Nutrien 15 of 21 analysts rate the stock C$120
“buy” or higher; 6 “hold”
Mosaic 10 of 20 analysts rate the stock $75
“buy” or higher; 10 “hold”
CF Industries 8 of 19 analysts rate the stock “buy” $110
or higher; 11 “hold”
