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Agrium (AGU) Downgraded to Sell on Pricing Pressure

Zacks Investment Research downgraded Agrium Inc. AGU to a Zacks Rank #4 (Sell) on Jan 5.

Why the Downgrade?

Agrium continues to face pricing pressure. It is seeing weak pricing for phosphate and potash. Moreover, urea prices are expected to be under pressure partly due to the anticipated rise in Chinese export supplies. Agrium is also facing challenges stemming from weak crop pricing environment, which may continue to unfavorably impact the crop input market in the near term.

Agrium also faces challenges in the form of transportation bottlenecks and plant outages. Harsh winter weather challenged rail and port transportation logistics in 2014 and constrained logistic capacity is expected to result in tight supply and demand balances within regional markets through the spring season.

The global macroeconomic situation presents some risks that have the potential to impact agricultural markets. Agrium is also susceptible to natural gas price volatility. Natural gas is the key raw material used to make nitrogen and represents the largest purchased raw material in the company’s Wholesale segment. Higher natural gas prices may impact nitrogen margins in the segment.

Agrium and other fertilizers and agricultural chemicals makers face significant challenges following the exit of world's largest potash maker Uralkali Group from one of the biggest potash cartels – the Belarus Potash Company (BPC). Uralkali’s board decided to end export sales through BPC and direct all potash export through its Switzerland-based trade arm, Uralkali Trading. BPC is one of the two largest cartels (along with North America’s Canpotex) that influence potash pricing by controlling production and supply. Uralkali’s game-changing move has put pressure on potash prices. The dissolution has created an uncertain environment.

Stocks to Consider

Some better-ranked companies in the basic materials sector include Rentech Nitrogen Partners, L.P. RNF, AngloGold Ashanti Ltd. AU and Harmony Gold Mining Company Ltd. HMY. All of them carry a Zacks Rank #2 (Buy).

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
AGRIUM INC (AGU): Free Stock Analysis Report
 
ANGLOGOLD LTD (AU): Free Stock Analysis Report
 
RENTECH NITROGN (RNF): Free Stock Analysis Report
 
HARMONY GOLD (HMY): Free Stock Analysis Report
 
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