Nitrogen Boom May Boost Prices

01/11/2010 3:14 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Do Norwegians grin? Surely that was a trickle of a smile at Yara International’s (OTC: YARIY.PK) annual update for investors on December 10.

The Norwegian fertilizer company reported that the nitrogen fertilizer market was headed for demand-driven price increases in the first half of 2010. Urea supply, a major form of nitrogen fertilizer, should remain tight in 2010, with only three projects likely to come on line.

Supply (except for China) in 2010 will increase by 3%, according to Deutsche Bank, while demand will climb 5%, the bank projects. Chinese exports are likely to remain limited in 2010 as higher production costs limit the competitiveness of Chinese urea.

Yara International’s plants ran at about 63% of capacity in 2009, and these scenarios should result in a pickup to near 80% of capacity. As of January 10, 2010, I’m raising my target price for Yara International to $53 a share by November 2010 from the prior target of $47.20. It traded at around $49 on Monday. (For more on my other fertilizer stock, Potash of Saskatchewan (NYSE: POT), see this recent post.)

Full disclosure: I own shares of Yara International in my personal portfolio.

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