Phosphate fertilizer makers are set to gain as a supply surplus in the $35 billion market narrows, reducing the premium investors pay for potash producers, according to VTB Capital.
“The phosphate fertilizer producers are set to become the blue chips of the agrochemicals market, the role which potash miners once held,” said Elena Sakhnova, an analyst at VTB Capital in Moscow.
While the two groups of fertilizers don’t directly compete as farmers require both, Sakhnova said the pendulum is swinging in favor of phosphates, with demand set to increase 3 percent this year. The $20 billion potash market hasn’t recovered from the 2013 demise of the trading venture between PAO Uralkali, the biggest producer, and its Belarusian partner, which depressed crop nutrient prices and shares.
The gap in the enterprise value to earnings before interest, taxes, depreciation and amortization ratio between potash producers and phosphate-focused fertilizer makers, which indicates the size of the premium investors are ready to pay for the shares, has narrowed to the lowest since at least 2013, according to data compiled by Bloomberg.
“The supply-demand situation on the horizon is much better in phosphates than in other fertilizers,” said investor Jim Rogers, who sits on the board of OAO Phosagro, the world’s third-largest phosphate nutrients producer. Rogers has invested in Phosagro shares, but not those of Uralkali.
Demand for diammonium and monoammonium phosphate, the benchmark for the nutrient, is set to increase to 62 million metric tons this year, according to VTB Capital estimates.
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