Friday, December 14, 2007

Potash Corporation (NYSE:POT): A two-tiered increase of $190/metric ton (MT) for 2008 potash exports to China? - BAC

- Banc of America is out positive on Potash Corporation (NYSE:POT) and Mosaic (NYSE:MOS) saying they have seen nothing in the press, but have heard from sources that attended meetings with Uralkali last week that Russian potash export association BPC (Belorussian Potash Company) has proposed a two-tiered increase of $190/metric ton (MT) for 2008 potash exports to China. BPC has apparently proposed a $140/MT increase for 1H08 followed by another $50/MT in 2H. BAC understands the Chinese government is working on a counter with a round of meetings scheduled for this week. This initial BPC offer appears to be well above BAC's estimate of an $80/MT settlement with China next year. While it is impossible to predict the eventual outcome, clearly there is potential upside to China potash price assumptions for next year. China typically sets the global benchmark for potash prices as the largest importer of potash (9.2m MT, 72% of domestic use) globally.

The news has potential positive implications for potash earnings at all North America producers. By their math, every $10 per ton in potash price adds earnings of $0.19/share at POT, $0.12/share at MOS. Rates Buy on both.

Notablecalls: Expect to see buy interest in both POT and MOS following this call. Nice one, Marshall!

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