Tuesday 30 July 2013

K+S down almost 25%

A German mining company

Today the share price for K+S (see old analysis here) dropped by almost 25%. The reason is that Mr. Market fears that the potassium price will significantly drop because the oligopoly structure might break down since Uralkali (a Russian potassium mining company) decided to leave the Belarusian Potash Company (BPC) that are/were trading 45% of all potassium in the world to start working with a new trading company in Switzerland instead.

I honestly do not know how big the risks are. In the end... every company wants to make money, it is hard to kill off the potassium companies out there today because there are so few of them and Uralkali do not have the capital to do so. The potassium market is generally growing due to China spreading it out on their fields to reach a significant high domestic food production to avoid too much import. India which already today has high food productivity due to good soil will most likely also need more and more potassium. How it is in Africa I do not even know but I doubt the potassium market will go down the road that Mr. Market thinks. Sure prices go up and down and due to speculation on raw materials it is moving even more then usual but to give as an argument that it was during a week up at 1000 USD per tonne is just silly. That was purely at the benefit of raw material speculators. Few companies unless it is noble metal industry run their business based on daily prices. The companies have longer running contracts with fixed prices and fixed delivery of product.

I think the general rule applies: Be greedy when people are fearful and be fearful when people are greedy.

At 20.24€ the K+S share has a:

P/E of 5.8
P/B of 1.1
ROE of 19.2%
Dividends based on 2012 of 6.9%

Here is the response as given by K+S due to the current event.

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