Potash Corp./Saskatchewan (USA) (POT), BHP Billiton Limited (ADR) (BHP), Intrepid Potash, Inc. (IPI): Should You Avoid All Potash Producers?

Intrepid Potash, Inc. (NYSE:IPI) is a considerably smaller player despite being the largest producer of the commodity within the US. Against what many analysts think, I do not believe the company is isolated from the the world-wide price war which is about to start playing out. If Intrepid Potash, Inc. (NYSE:IPI) were to keep prices high, I think we shall witness an increase of potash imports from abroad. Besides, I do not think a ramp up in production from the HB Solar project will help to materially offset falling prices.

As a matter of fact, I think EBITDA could go down as much as 30% year-over-year by 2014. If my estimates are correct, Intrepid Potash, Inc. (NYSE:IPI) would now be trading at 8.1 times 2014 EV/EBITDA, which I think is overly optimistic. Plus, the company does not offer any cash distribution yield. Being a smaller higher-cost producer should damage Intrepid Potash, Inc. (NYSE:IPI)’s market position now more than ever before. I would sell Intrepid Potash, Inc. (NYSE:IPI) despite the 30% year-to-date fall in the company’s shares.

As professor Greenwald from Columbia University says, if you operate in a market without strong barriers to entry (such as aluminum or potash), you need to be extremely efficient. Potash of Saskatchewan and Uralkali are extremely efficient and, therefore, destined to survive. Other companies, such as Intrepid, could find themselves in a serious situation if a full-scale price war unravels. Sell all potash producers until the commodity’s price stabilize somewhat. Then, buy only the most cost-efficient players.