What Does the Middle East Conflict Mean for Nutrien (NTR)’s Nitrogen Business?

Nutrien Ltd. (NYSE:NTR) is one of the best TSX stocks to buy according to hedge funds. On April 20, Scotiabank analyst Ben Isaacson raised his price target on Nutrien Ltd. (NYSE:NTR) to $75 from $70 while keeping the stock at a Sector Perform rating.

Isaacson argued that the conflict in the Middle East has made Nutrien’s nitrogen business worth more than it was before. This is because geopolitical disruptions have effectively lowered the risk-adjusted availability of nitrogen supply globally, which, in turn, benefits North American producers like Nutrien. To this end, the analyst revised his nitrogen price forecast upward. He lifted his mid-cycle estimate for NOLA urea, a key benchmark for US nitrogen prices, to $400 per short ton. Scotiabank estimates this price deck revision alone could add roughly $800 million in run-rate EBITDA across nitrogen producers like Nutrien, which translates to about $600 million in incremental free cash flow.

The analyst also noted that Canpotex, Nutrien’s export marketing arm, is sold out through June with no signs of demand destruction. However, the analyst is not yet convinced that margins have fully followed the recent price increases, with higher freight costs, rather than genuine demand strength, largely responsible for elevated delivered prices.

Scotiabank also flagged that energy-driven cost inflation could weigh on potash cash costs over the next one to two quarters. Isaacson said that the firm is watching for possible volume pressure to emerge in the fall. In other words, the firm made no meaningful changes to its potash price forecasts.

Nutrien Ltd. (NYSE:NTR) is an agricultural inputs company formed through the merger of Potash Corporation and Agrium. It produces and distributes crop nutrients, including potash, nitrogen, and phosphate fertilizers, and operates a large global retail network supplying seeds, crop protection products, and agronomic services to farmers.

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