Title The Market for Potash 2012 Degree of recognition National Media name/outlet ResourceStocks Magazine - Aspermont Media type Duration/Length/Size 1 page Country Australia Date 12/01/12 Description Experienced investors know that there is no such thing as a sure-thing when it comes to the world of mineral resources: Two trends that do stand out as being close to incontestable however are firstly the economic rise of China as the all-consuming global commodity powerhouse – and secondly that the world’s growing populous will drive heightened future demand for fertiliser products as food tastes mature in the emerging economies.
Enter potash, for which ~90% of demand comes from agriculture – with China, India and Brazil leading the world in consumption growth and the USA also a major end-market.
Put simply, the world potash industry exists primarily to supply fertilizers that contain potassium, one of the three main plant nutrient elements (alongside nitrogen and phosphorus). Potash fertilizers help to increase crop production yields, thereby feeding the increasing demand for higher value foodstuffs such as meat and fruit that require intensive use of fertilizers.
The term “potash” generally applies to a range of potassium minerals and chemicals, but particularly to potassium chloride. This substance, often known as MOP (“muriate of potash”) or by its chemical formula (KCl) is the most common potassium fertilizer. Fertilizer grade KCl typically contains 60% potassium nutrient (K2O).
Non-fertilizer use of potassium chloride represents less than 10% of global consumption. The most common chemical derivative of potassium chloride is potassium hydroxide, which is produced on a large scale primarily in Western Europe, the United States, Japan and South Korea. Potassium chloride is also used as an additive in drilling mud, particularly in North America and the Middle East.
Shifting to the supply-side, international potash trade, akin to iron ore, is dominated by just a few countries able to supply large tonnages. Indeed, two thirds of the global supply capacity is located in just three countries – Canada, Russia and Belarus. This figure rises to over 90% when the next three largest producing countries are added; namely Germany, Israel and Jordan.
Ten companies control 95% of the total global capacity, with the three largest accounting for half of the total. The biggest producers of potassium chloride are PotashCorp and Mosaic in North America and the state-controlled potash industry of Belarus
Potash is traded under buyer-seller contracts. China and India have traditionally purchased much of their potash via 12-month contracts, though a shift to greater use of quarterly and spot sales is evolving. Two large potash export trade associations, Canpotex and BPC, manage export sales from Canada and Russia/Belarus respectively. The members of Canpotex are Agrium, Mosaic and PotashCorp of Saskatchewan – with the latter company the subject of a US$40 billion hostile bid from BHP Billiton in 2010. The BPC producer-members are Uralkali and Belaruskali.
The predominant ore mineral for potash mining is sylvinite, which contains sylvite (potassium chloride) in combination with halite (rock salt) and smaller amounts of other evaporite minerals and clay. Operations are mainly underground conventional mines with a small number of solution mines also in production. The remaining capacity comes from operations that treat natural brines, usually through solar evaporation, to obtain minerals such as carnallite (KCl.MgCl2.6H2O) from which KCl can be extracted. In most operations, potassium chloride is extracted from potash minerals via flotation and thermal dissolution, either separately or integrated into the same flow sheet. Some producers also employ HMS (heavy media separation) or electrostatic separation as part of their treatment schemes. Flotation is favoured because of its simplicity and low energy requirements.
Since the 1960s, the trajectory of potash prices has been an unexciting one, aside from peaks in the mid-1970s and early 1980s. There was a lengthy period of declining prices (in real terms) from the late 1980s onwards, leaving prices at around $120/t until a major bull-run began in 2003. That run ended with spot prices touching $1,000/t in 2008. Since then, prices have fallen, but remain higher in real terms than at any point before 2007.
There are relatively few potash investment opportunities on the ASX. That said, there are a number of companies listed in Australia exploring for potash and seeking to develop future projects to service the anticipated growth in demand.
These include Reward Minerals (RWD), Elemental Minerals (ELM), Fortis Mining (FMJ), South Boulder Mines (STB), Red Metal (RDM), General Mining (GMM), Potash Minerals (POK), Potash West (PWN), Orocobre (ORE) and Rum Jungle Resources (RUM).
The potash sector looks set to benefit from the ever growing need to feed the world’s developing economies.
Producer/Author Allan Trench Persons Allan Trench