In his first response to BHP Billiton Ltd.'s hostile takeover bid, Bill Doyle, Potash Corp. of Saskatchewan Inc.'s chief executive officer, said the offer price was far too low because the global economy was just starting to recover and fertilizer demand was set to skyrocket.
A new report by the commodity research team at Bank of Nova Scotia proves Mr. Doyle might have been on to something.
Spot potash prices have moved sideways for most of 2010, hovering around $342.50 (U.S.) per tonne. That hasn't changed much in October, but Patricia Mohr at Scotia notes some recent sales at higher prices are starting to materialize for the coming months. Belarusian Potash Co. (BPC) sold some product to Brazil at prices rising to $410 for December delivery, and Canpotex followed suit with December and January deliveries to Brazil in the same price range.
On top of that, demand has strengthened in southeast Asia, allowing Canpotex to sell 150,000 tones of standard and granular product around $405 and $420, respectively. China's Sinofert also signed a three-year supply agreement with Canopotex for more than 1 million tonnes each year, a sign that China wants to secure longer-term supplies because it believes demand will rise, Ms. Mohr noted.
This demand could continue to grow. The latest data highlights a 17 per cent drop in North American potash inventories relative to the five-year average. Record U.S. farm income matched with high crop prices could also result in heavy fertilizer application next spring, Ms. Mohr noted.
Given the expected higher prices, it looks like Mr. Doyle wasn't making rash predictions to save his company.