Agrochemicals – 2010 outlook driving our stock
calls: With the 2009 agricultural season now largely
behind us, and the focus shifting to 2010, we remain
cautious on potash (we move K+S to Underweight),
where we believe expectations of a fast recovery may
disappoint. We are neutral on nitrogen (Yara upped to
Equal-weight) and still see Syngenta as our top pick.
K+S cut to Underweight: We expect an unfavourable
Chinese potash settlement at or below $390/t as (1)
domestic Chinese prices are already below international
prices; (2) spot sales may already be happening
<$400/t; and (3) China could get by with <2mt imports on
our analysis. We estimate the shares are discounting a
potash price of $450/t on ‘normalized’ volumes. We think
a return to ‘normalized’ volumes in 2010 is optimistic,
even with a further price cut. Our 2010 EBIT forecast is
17% below consensus, and with c18% downside to our
new