nortexsook
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Potash king shows no mercy
Sean Silcoff, Financial Post Published: Friday, January 25, 2008
http://www.financialpost.com/story.html?id=261358
Bill Doyle is the most powerful chief executive in Canada, maybe the world. Don't laugh. The CEO of Potash Corp. sells something everyone needs -- fertilizer -- and he and his peers can charge what they want.
Even the mighty Chinese government has little choice but to accept the price of the two global potash-selling cartels: Beijing stared them down once, and blinked (asking for a US$20-a-tonne price cut, but accepting a US$25 hike in 2006-07).
This time, the price will likely go up by more than US$100.
The Chinese are playing tough in negotiations, but the potash makers have them over a barrel.
And Mr. Doyle -- his company is the world's largest fertilizer maker -- has the temerity to brag about it. If the Chinese don't like his price, he'll sell to someone else.
"We'll do better without them," he said yesterday, leaving Beijing with the "real political risk" of facing food shortages.
Mr. Doyle is playing a dangerous game, but one he can't lose.
It's hard to argue when agriculture commodity prices remain high.
Tens of millions of people are leaving poverty behind in China, India, Brazil and Eastern Europe each year, buying cars, homes and better food. Specifically, they are eating more meat, which requires more grains to feed the animals, which is why prices for corn and other basics have soared. And don't forget ethanol.
To get more out of their fields, farmers buy fertilizer -- demand is growing by 4% per year. Inventories are at their lowest in 17 years, and only Potash has the ability to raise production between now and 2012, by restarting idle mines, further cutting its industry-low costs.
Demand and production are rising, costs are falling and prices are soaring. One ton of potash in North America cost US$232 way back on Oct. 30. By March 1, it will be US$414. Prices in Brazil and Southeast Asia are even higher.
In the 1990s Potash had a long, dry run and people tuned out Mr. Doyle's shtick: He would hold out an apple, tell people to imagine it was the globe, then cut it up until he was left with a piece he said represented the 3% that was arable land. We're trying to feed the world, he'd say. But food prices stayed low. Still, Mr. Doyle did what great CEOs do: He readied an industry leader in an ignored business for its time in the sun.
That happened four years ago. Since then, each day has been brighter than the last. Yesterday, Potash said fourthquarter profit doubled, totaling US$1.1-billion in 2007; it could double this year.
But despite a 600% increase in the past four years, Potash still doesn't get the respect that it deserves. One analyst asked why it wasn't worth as much as its smaller U.S. rival, Minnesota-based Mosaic Co. "Attention-deficit disorder is alive and well on Bay Street and Wall Street," Mr. Doyle retorted.
But you can rest assured they're paying attention elsewhere. Potash will be the next Canadian jewel to be snapped up by a foreign buyer. Like Alcan, and Canada's nickel and steel giants, it trades at a decent price, but nothing like the premium foreign buyers would pay. High commodity prices and profits made those deals seem like bargains in retrospect. Potash investors should take note. "We know BHP Billiton has taken a look at us, we know Rio has looked at us" and sovereign wealth funds "are also a possibility," Mr. Doyle told me. It makes sense. If metals are strategically important to developing nations, agriculture will be, too.
"I don't think [the stock price] is nearly representative of our value," Mr. Doyle said, a standard line for CEOs but probably true in his case. "It won't be cheap if someone does take a run at us."
Sean Silcoff, Financial Post Published: Friday, January 25, 2008
http://www.financialpost.com/story.html?id=261358
Bill Doyle is the most powerful chief executive in Canada, maybe the world. Don't laugh. The CEO of Potash Corp. sells something everyone needs -- fertilizer -- and he and his peers can charge what they want.
Even the mighty Chinese government has little choice but to accept the price of the two global potash-selling cartels: Beijing stared them down once, and blinked (asking for a US$20-a-tonne price cut, but accepting a US$25 hike in 2006-07).
This time, the price will likely go up by more than US$100.
The Chinese are playing tough in negotiations, but the potash makers have them over a barrel.
And Mr. Doyle -- his company is the world's largest fertilizer maker -- has the temerity to brag about it. If the Chinese don't like his price, he'll sell to someone else.
"We'll do better without them," he said yesterday, leaving Beijing with the "real political risk" of facing food shortages.
Mr. Doyle is playing a dangerous game, but one he can't lose.
It's hard to argue when agriculture commodity prices remain high.
Tens of millions of people are leaving poverty behind in China, India, Brazil and Eastern Europe each year, buying cars, homes and better food. Specifically, they are eating more meat, which requires more grains to feed the animals, which is why prices for corn and other basics have soared. And don't forget ethanol.
To get more out of their fields, farmers buy fertilizer -- demand is growing by 4% per year. Inventories are at their lowest in 17 years, and only Potash has the ability to raise production between now and 2012, by restarting idle mines, further cutting its industry-low costs.
Demand and production are rising, costs are falling and prices are soaring. One ton of potash in North America cost US$232 way back on Oct. 30. By March 1, it will be US$414. Prices in Brazil and Southeast Asia are even higher.
In the 1990s Potash had a long, dry run and people tuned out Mr. Doyle's shtick: He would hold out an apple, tell people to imagine it was the globe, then cut it up until he was left with a piece he said represented the 3% that was arable land. We're trying to feed the world, he'd say. But food prices stayed low. Still, Mr. Doyle did what great CEOs do: He readied an industry leader in an ignored business for its time in the sun.
That happened four years ago. Since then, each day has been brighter than the last. Yesterday, Potash said fourthquarter profit doubled, totaling US$1.1-billion in 2007; it could double this year.
But despite a 600% increase in the past four years, Potash still doesn't get the respect that it deserves. One analyst asked why it wasn't worth as much as its smaller U.S. rival, Minnesota-based Mosaic Co. "Attention-deficit disorder is alive and well on Bay Street and Wall Street," Mr. Doyle retorted.
But you can rest assured they're paying attention elsewhere. Potash will be the next Canadian jewel to be snapped up by a foreign buyer. Like Alcan, and Canada's nickel and steel giants, it trades at a decent price, but nothing like the premium foreign buyers would pay. High commodity prices and profits made those deals seem like bargains in retrospect. Potash investors should take note. "We know BHP Billiton has taken a look at us, we know Rio has looked at us" and sovereign wealth funds "are also a possibility," Mr. Doyle told me. It makes sense. If metals are strategically important to developing nations, agriculture will be, too.
"I don't think [the stock price] is nearly representative of our value," Mr. Doyle said, a standard line for CEOs but probably true in his case. "It won't be cheap if someone does take a run at us."
should have put more on in the years it was cheaper to build up reserves.
