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Why Potash Stocks Got Pummeled

Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on big changes — just in case they’re material to our investing thesis.

What: Shares of PotashCorp (TSX: POT) and Agrium (TSX: AGU) plummeted 16% and 5%, respectively, today, after Russia’s Uralkali — the world’s largest potash producer — broke up a cartel with Belarus that controlled about 43% of global exports.

So what: Uralkali is making the volume-over-price move to steal market share and boost sales to China, completely turning the global potash market on its head. In fact, Uralkali’s decision is expected to cause potash prices to plunge to its January 2010 levels, sending the shares of North American potash companies — which will now have to compete at the discounted price — crashing along with the forecast.

Now what: Uralkali sees potash prices plunging 25% to about $300 per ton by the end of year. “In the near future we expect (global) competition to become stronger — that will push prices down,” Uralkali CEO Vladislav Baumgertner said in a conference call. So while it’s always tempting to pounce on severely beaten down stocks, there might be too much uncertainty surrounding potash stocks right now to make the bet a smart one.

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Fool contributor Brian Pacampara doesn’t own any of the stocks mentioned at this time.  The Motley Fool doesn’t own any of the stocks mentioned at this time.        

 

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