SASKATOON – If you’re looking to make money in the short term, potash companies are an investment to avoid due to a low commodity price, demand and an outstanding international contract, according to a Saskatoon-based investment advisor.
“With the oversupply in the market, there tends to be … pressure on prices,” said Sean Meshke, an advisor with Prairie Wealth Management in Saskatoon.
“Until that supply really drops off, you’re not going to see the increase in potash prices come back.”
READ MORE: PotashCorp slashes dividend 34% on weaker sales, lower prices
Potash prices are hovering around an eight year low and Meshke said they could dip further due to an outstanding contract. Saskatchewan producers have yet to ink their 2016 supply deal with Chinese importers.
In 2015, a deal was finalized in March, while in 2014 it was in place by January. The price China pays for potash likely sets a benchmark for its world market price, according to Joel Bruneau, a University of Saskatchewan resource economics professor.
“They want the potash, they just want it at a good price,” said Bruneau, who added that China buys roughly 20 per cent of Canada’s potash.
“I think they recognize that the market is soft and therefore proportionally they have even more power than they would have had in previous years where there’s a lot of buyers out there and there’s a lot of people buying.”
An industry union staff representative told Global News that there is confidence a deal with eventually be finalized. Bruneau said it wasn’t clear that 2016’s negotiation timeline is the “new normal.”
“The Chinese economy has slowed down and you can see this maybe reluctance to make this contract or a willingness to negotiate harder as sort of symptomatic of that slowdown,” said Bruneu.
“If China starts to stabilize … then you might expect them to go back to the standard practice of negotiating a little bit earlier.”
The future for potash minded investors could also be brighter than the present. The commodity is mostly turned into fertilizer and many experts believe it will help feed a growing world population. Meshke said it may be a good investment for those playing the long game.
“Sooner or later that supply and demand in-balance will come and rectify itself and you will see it go the other way,” said Meshke.
Comments