Fertilizer feedstock prices are on the up and up and it’s creating a potash rush.
The main reason for the price increase has been a steady rise in demand, caused by population growth coupled with the ongoing development of agribusiness in Asia and Africa, where fertilizer use has reached unprecedented levels. Added to this, potash purchasers are experiencing a period of limited increases in supply (which is largely based in China, Russia, Belarus, and Canada), and as a result have seen prices shoot up by 25% in the last year, to more than $350 a ton.
Fertilizer manufacturers are additionally concerned by news that agrichemical insiders are predicting further price increases as the current supply/demand trend is set to continue. As BHP, one of the world’s largest extractors of commodities, stated in its half-year report in February 2019, that, “We expect annual [potash] demand growth of between 2%-and-3% over the next decade, resulting in demand exceeding available supply from existing and forthcoming capacity by the mid-to-late 2020s.”
In response, potash extractors are developing numerous mines that are hoping to cash in on the increase, as this list shows;
In Australia, the AUS$216m Beyondie project of Kalium Lakes recently passed a major hurdle when Western Australia’s environmental watchdog approved the start of extraction.
Meanwhile, financial backing has also been secured, with news reports stating that, “Last week the company said it had lined up private equity player Greenstone Resources to invest $20.8 million for a 19.99 per cent stake in the company. [While] Kalium has already secured $74 million in project debt funding from the Northern Australia Infrastructure Facility and a $102 million loan from Germany’s KFW/Euler Hermes.”
In East Africa, Danakali is continuing development of its Colluli project in Eritrea since it signed a Mining Agreement in February 2017. Following the awarding of the requisite Mining Licenses, the company states that, “The project is rapidly progressing to construction,” estimating that, “Over 6 billion tonnes of potassium bearing salts have been identified to date, and the region has attracted a number of major fertiliser players including ICL and Yara International.”
Once fully on-stream, potash supplies of this quantity are sure to impact market prices.
The Australian potash market will also be further congested by the expanded potential of resources at Lake Way in central Western Australia. The potash reserves found there have been outlined for extraction by Salt Lake Potash.
The Australian-based company announced to investors in March 2019, that surveys of the ‘whole of the lake’ have now concluded and that, “The estimated total Mineral Resource Estimate at Lake Way has increased to 73 million tonnes (Mt) of SOP calculated using Total Porosity and 8.2Mt of SOP calculated using Drainable Porosity.”
But with potash prices rising quickly, even Britain, which closed many of its mines decades ago, is working hard to begin potash (as well as polyhalite) extraction in North Yorkshire.
However, Sirius Minerals, which is carrying out the work at the £3.2 billion mine (including a 37 km tunnel from the source to the pit head) isn’t scheduled to bring its first mineral deposits to the surface until late 2021.
Finally, and most ambitiously, plans are being carried out by BHP to begin full production at its $10 billion Jansen project in Canada.
This last project has been a focus of great interest, not only because of its size, but also because of the stop-start progress being made at the site.
The company’s 2017 annual report stated that the project was “75% complete” with work progressing to “finish the excavation and lining of the production and service shafts, and to continue the installation of essential surface infrastructure and utilities.”
While its latest report, published in February 2019, merely stated that, “Jansen remains an important strategic option, and we continue to investigate multiple ways to maximise the value of the project – from progressing detailed engineering studies to improve capital efficiency, to trialling technology to minimise operating costs.”
The project began as an alternative investment, after the Canadian government rejected the $39 billion takeover bid for Canada’s Potash Corporation of Saskatchewan back in 2010.
Instead of the buy-out, the Jansen project was born with an estimated 100 years’ worth of potash reserves. It was expected to return four million tons of potash annually in its early years, rising to 12 million tons a year thereafter. However, soon after work was begun potash prices crashed causing BHP to ‘go-slow’ on developing the multiple deep shafts needed to extract the deeply buried potash.
Now that prices are returning towards the 2010 price of $525 a ton, potash industry experts are predicting that production will soon begin anew.
However, mixed signals from the company's chief executive, Andrew Mackenzie, as well as a refusal to commit to a fixed timeline or to state when full scale extraction will begin has created a turbulent market.
As a recent report in Forbes magazine noted, “BHP's indecision is making life tough for smaller potential entrants in the potash business because the size of Jansen means it could easily satisfy most expected new demand, leaving limited room for other potential producers.”
This has created some uncertainty in the potash market, with fertilizer producers hesitant to confirm deals whilst other are signing contracts to affirm their agrichemical supply chains. Proving that price rise certainty is never that certain.