HSBC report brightens Arab Potash's outlook

What's Up: HSBC revises its forecast for potash prices for the year, and raises Jordan's Arab Potash to "Neutral", from "Underweight".

The spot price for potash has risen by about 25 per cent this year to more than $500 a tonne. Reuters

Jordan's Arab Potash may get a boost from an HSBC report saying fertiliser stocks offer safety amid global economic uncertainty, with potash representing the most attractive risk to reward.

The mineral is used to make fertiliser. There is so much demand from farmers that potash producers are increasing their prices almost constantly. HSBC raised its 2012 forecast for the commodity to US$540 a tonne from $465 a tonne, citing high demand and new production capacity. The bank expects stable, transparent potash prices towards the end of next year. The sector is "in much better shape" than prior to the global financial crisis in 2008, HSBC said in a report to clients.

Agricultural financing remains in place, and farmers' profit margins on corn and soy are strong, with minimal risk of a decline. The industry is forecast to be producing at 75 to 77 per cent of capacity in 2017 to 2020 versus 68 to 72 per cent at present. Jordan is among five countries that control 90 per cent of the world's phosphate and potash reserves.

Arab Potash, which has a production capacity of 2.45 million tonnes a year, has secured contracts with India and China to deliver 1.8 million tonnes to each country over the next three years.

The spot price for potash has risen by about 25 per cent this year to more than $500 a tonne. Continued strong demand for fertiliser products is expected worldwide as populations increase and demands on agricultural land increase.

Food prices are likely to increase for the next decade, according to forecasts by the UN Food and Agriculture Organization and the Organisation for Economic Co-operation and Development.

The agencies predict that cereal priceswill be as much as 20 per cent higher over the next 10 years, with meat prices as much as 30 per cent higher.

Arab Potash reported an 83 per cent increase in net profit to 128.7 million Jordanian dinars in the first half of the year from 70.2m dinars in the same period last year.