Is BHP Billiton Limited (ADR) (BHP) Jumping Into the Potash Corp./Saskatchewan (USA) (POT) Market?

Since BHP doesn’t plan to join Canpotex, we think the global mining duopoly could be slightly disrupted. Jansen could have 8 million tonnes of capacity (15% of the global potash demand in 2012) and a useful life of more than 50 years, making BHP no small player. In fact, BHP could become a serious player, and the addition of robust supply could eventually put downward pressure on global potash prices—bad for potash producers, but potentially positive for companies such as Caterpillar Inc. (NYSE:CAT) and Deere & Company (NYSE:DE). Lower potash prices could free-up farmer capital to invest in other areas, like machinery.

BHP continues to scrutinize capital-allocation decisions, and it may ultimately decide that betting on potash in the long-term is the right choice. In any case, the next few years seem to be setting up to be a struggle for the global mining giant. As for the potash producers, we like the long-term demand potential for crop nutrients to boost food production for burgeoning nations. Still, we believe Agrium Inc. (USA) (NYSE:AGU), Mosaic, and Potash Corp./Saskatchewan (USA) (NYSE:POT) look fairly valued at current levels. BHP is also now trading in line with our fair value estimate (at the time of this writing).

The article Is BHP Billiton Jumping Into the Potash Market? originally appeared on Fool.com.

RJ Towner has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. RJ is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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