Long-term investors bullish on the prospects of potash companies such as Potash Corporation of Saskatchewan Inc. (TSX:POT)(NYSE:POT) have long been waiting for a rebound in a commodity sector that has been hit, by some measures, harder than other commodities sectors over the past two years.
The long-term prospects of the potash industry continue to be solid, with international growth expected to continue at its long-term rate of 3% per year in perpetuity. Potash is the primary commodity used for fertilizer, and as the world’s population and consumption trends continue higher, the thought is that buying some of the industry-leading potash producing companies should provide a decent and stable yield over time to a patient investor.
Over the past year, potash prices have stabilized at a new low level, and margins in the industry have been subsequently squeezed. The largest producers have continued to consolidate, with Potash Corp. being no exception; the company is poised to merge with another large Canadian potash producer Agrium Inc. (TSX:AGU)(NYSE:AGU). The merger is expected to close in mid-2017, with Potash Corp. being able to gain synergies from the transaction due to the retail-focused nature of Agrium’s business model.
In this economic environment, with potash prices hovering near decade-lows, increased consolidation among the largest players in the industry, and cartel-like economics of the industry (the largest producers are members of CANPOTEX, an exporting group similar to that of OPEC), now may be a great entry point for long-term investors to consider Potash Corp. at depressed levels.
