Rumors Surround Potash, But What's Wall Street Saying?

Shares of Potash Corp./Saskatchewan (USA) POT were trading higher by nearly 1 percent early Tuesday afternoon following unconfirmed news reports the company may be prepping to undertake an unfriendly takeover of German salt and fertilizer company K+ S AG (K PLUS S AG ADR KPLUY)

K+ S rejected an $8.7 billion bid from Potash back in July, saying that the acquisition offer was too low.

The timing of Tuesday's unconfirmed market reports follows a series of bearish notes released by analysts over the weekend given ongoing concerns of further declines in Potash prices.

CIBC: Five Key Changes Affecting The Potash Market

Jacob Bout, a chemicals and fertilizers analyst at CIBC offered four key points investors should be aware of within the potash space.

Related Link: Hearing Potash May Be Preparing Unfriendly Takeover Bid For K+ -- UNCONFIRMED

• 1. Brazil spot prices have declined with reported granular MOP sales ranging $305-$315/mt CFR. Meanwhile, in the United States, granular MOP barge prices have fallen to $295-$300/st FOB NOLA, equating to $323/mt CFR U.S. Gulf, just slightly above Brazil's prices and "significant" below prices recorded in Europe.
• 2. The Chinese government recently lowered the benchmark prices of natural gas for some consumers. As such, there is now a surplus of natural gas and the government is hoping to incentivize gas-based methanol producers to restart production.
• 3. A new Chinese 13 percent VAT policy for fertilizers came online on September 1. The move is expected to have a "significant" impact on China's potash sector, as local producers are unable to offset the tax using VAT on input costs.
• 4. There are several signs of a change in corn support prices in China as much as 15 to 20 percent. Cuts in corn prices, along with rising fertilizer costs (due to the VAT) may lower domestic fertilizer demand.
• 5. Production of corn in Argentina is expected to fall to just 2.8 million hectares, 15 percent lower than last year and marking a new 25-year low.

Scotia Bank: Cautious On Potash And Potash Corp

Ben Isaacson of Scotia Bank commented in a note that the "window for a 2015 recovery by Brazil is over" with year-to-date imports tracking 15 percent below last year's level. Meanwhile, in India, optional contract will likely be "scrapped" given a deficient monsoon, and "material demand destruction" in southern states.

Commenting on Potash Corp, the analyst noted the stock continues to "reflect near-marginal cost pricing." The analyst added that before becoming constructive on the name, he needs to ensure that: 1) the stock isn't setting up to be a "value trap" and 2) the company will not pay up to acquire K+ S as the transaction "may have better implications for the potash market than Potash Corp shareholders, depending on price and terms."