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Why Low Potash Inventory in 2016 Is Positive for Intrepid Potash

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Background

The environment for potash demand proved challenging in 1H16. Big potash buyers India and China delayed contract settlements, pushing back sales for companies such as PotashCorp (POT), The Mosaic Company (MOS), Agrium (AGU), and Israel Chemicals (ICL).

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Potash inventory

With falling potash prices, production (MOO) also took a hit, with many producers announcing either the idling of their mines or their transitioning to lower-cost mines. These actions have impacted inventory levels at the producer and distributor levels, as we can see in the chart above. Given falling potash prices, customers, too, held back their purchases, hoping the price fall would continue.

However, more recently, potash’s price fall has reversed. Prices have started to rise, creating a highly favorable situation for potash producers such as PotashCorp, Agrium, Mosaic, and Israel Chemicals.

Positives for Intrepid Potash

A price increase is what Intrepid Potash’s (IPI) investors long for. Intrepid has undergone several debt covenant waivers as potash prices have significantly deteriorated. With lower inventory in 2016, there’s an expectation that inventory refills could cause a spike in demand, and prices could start moving higher if demand rises faster than what can be supplied.

So, is demand expected to rise next year? Read on to know the outlook.

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