In the fertiliser minerals world potash does not play by the
| Glow of optimism: underground mining at
PotashCorp.s 4m. tpa Laningan mine in Saskatchewan,
Canada. Courtesy PotashCorp
Considering the present market challenges facing the
potassium bearing mineral, its price should have plummeted in
the last six months, as was the case for its phosphate rock,
nitrates and sulphur counterparts. This has not happened.
Since Q3 2008 demand for potash has vanished. The
worlds leading producer, Potash Corp. of Saskatchewan
Inc. (PotashCorp) described its sales as tailing off
considerably; German potash miner K+S Kali GmbH said
demand had come to a standstill and that the market
is slow and depressed; while The Mosaic Co
the worlds second largest producer described
demand as soft as the market
While sulphur and phosphate rock prices crashed and
in some cases paying for it to be taken away potash spot
prices fell to the $550/tonne mark (see IM April 09,
Potashs value was salvaged by across the board cuts at
the handful of the worlds major suppliers.
PotashCorp led the way by slashing 3.5m. tonnes (~30% of
capacity), The Mosaic Co cut 2m. tpa (~20%), while
Germanys K+S Kali GmbH is intending to curtail 1.7m. tpa
of its 8m. tpa capacity by mid-2009.
It appears an astonishing reversal of fortunes for potash
from this time last year, when the industry was experiencing
through-the-roof demand and producers were announcing a raft of
Despite this situation, there is a unique sense of optimism
surrounding all those involved with potash. There is such a
strong feeling that this rapid demand evaporation is short term
(one year), that producers talk of the expansion plans with the
same gusto as if demand were as positive as early-2008.
| World potash production
*The figures represent listed production capacity
but a more accurate figure is expected to be in the
57-58m. tpa region.
Source: Industry sources
The worlds leading potash producer, PotashCorp, will
be the name familiar to most. The group, which operates six
underground mines and one solution mine in Canada, has been
used as the benchmark not only for the potash industry, but for
the fertiliser sector as a whole and accounts for 20% of global
production (see Focus on Canada
In March 2008 PotashCorp announced its second round of
production cuts with a 1.5m. tpa reduction taking its total to
3.5m. tpa over 25% of its capacity as demand slumped. The
company, however, is leading the bullish mood among the
Bill Johnson, director public affairs at PotashCorp told
IM: Weve announced in Canada a
$6.8 billion expansion plan which started in 2007 and runs to
2012, raising production from 10-18m. tonnes. We have not
backed off on these expansion plans at all. This should tell
you something about our demand expectations.
PotashCorp has an iron grip on the industry, not only is it
the leading supplier but it also owns stakes in the following
producers: SQM SA, Chile (32%), Arab Potash Co., Jordan (28%),
and Israeli Chemicals Ltd (11%).
Thus there has been talk in the industry of a takeover of
the group by BHP Billiton Plc (see BHP &
PotashCorp careless talk? panel).
Mosaic: phosphate to potash
We are already a bigger potash producer than most
people realise and intend to grow [the potash business] to a
greater share of our total volume in years to come,
outlined The Mosaic Co.s president and chief executive
officer, Jim Prokopanko. And he has a point.
While PotashCorp gains virtually all the mainstream media
pages and is used as the barometer for the agricultural
industry, Mosaic has a production ability that nearly matches
the worlds bigger producer at 10m. tpa.
This perspective has come from Mosaic historically leaning
towards phosphate production which at present represents 51% of
it business to potashs 49%. Prokopanko aims to get this
ratio to 60:40 in potashs favour.
Mosaic operates: the Esterhazy mine K1 and K2 (5.3m. tpa
capacity) which is part owned by PotashCorp
Colonsay (1.8m. tpa capacity), and a solution potash mine in
Belle Plaine (2.8m. tpa capacity); all are located in south
Saskatchewan (see Focus on Canada
In announcing its sales results for its Q3 (December 2008 to
March 2009), a clearer industry picture was given.
Mosaics potash sales had slumped to 800,000 tonnes
compared with 2.1m. tonnes a year earlier.
Like PotashCorp, Mosaic is expecting its potash production
cuts to total 2m. tpa in this fiscal year which ends in May
Prokopanko described the present market situation as
soft while the crop nutrient market
He said: Weve experienced a broad and sharp
commodity sell-off, a global economic downturn and significant
credit constraints, and a pipeline build of high cost
This has resulted in a lack of buyer interest, weak
volume and declining prices, and heightened inventory valuation
risk across the supply chain. In response to slower demand and
rising inventory levels, numerous producers including
Mosaic have reduced production, added
Global potash production cuts
2009 reduction (tpa)
Mosaic, USA based, ops in Canada
K+S Kali, Germany*
Arab Potash Co., Jordan
SDIC Xinjiang Potash, China
Intrepid Potash, USA
Not expected at capacity in 2009
* An initial cut of 400,000 with K+S
announcing its intention to cut 1.3m. tpa extra
capacity by mid-2009
** Vales 2008 output: 607,000 tpa
Est = Estimated
Source: Industry estimates
Note: Cut off 500,000 tpa
Agrium merger raises questions
A proposed merger between Canadas third largest potash
producer, Agrium Inc. and one of North Americas largest
fertiliser groups, CF Industries Inc. has raised questions on
the competitiveness of the agribusiness sector.
A $3,800m. offer by Agrium was rejected by CF at the end of
March and described as grossly inadequate. Agrium
has since turned to the shareholders at CF urging them not to
re-elect the board, and at the time of press the situation
Agrium is the most rounded fertiliser mineral producer in
Canada with potash representing 26% of its business, nitrogen
29% and phosphates 17% (the remainder is retails and services).
Unlike Canadas other producers, Agrium is not expected to
cut production and the company intends to expand by 3m. tpa
over the next six years.
Mergers have dominated agribusiness over the last decade and
concerns have been raised over the competitiveness of the
The president of Canadian National Farmers Union, a body
representing potashs end users, Stewart Wells, explained:
These potash companies have been making these record
profits and what it really looks like theyre up to is
further carving up the available markets. It seems to us there
should be a really thorough examination of the whole business
with an eye to actually fostering real competition in the
Russian potash production comes from JSC Uralkali (5.5m. tpa
capacity) and OAO Silvinit (5.1m. tpa capacity) both of which
sell the vast majority of their product to China.
Following the dire end to 2008, Uralkalis potash
output last year was 6.7% lower than 2007 at 4.8m. tpa potash.
Silvinit is expected to have experienced a similar decline
between 500,000-1m. tpa.
Uralkalis latest sales figures show China as its main
customer taking 40% of production, Brazil second with 21%,
South East Asia 11%, Russia 10%, Europe 8%, India 7%, and
Over recent years many have predicted Russias rise to
dominance in the global potash industry, but this is yet to
Before the global economic crash caused a seismic shift in
perspectives, it was strongly suggested that the two producers
along with OAO Apatit would be subject to a government
encouraged merger as Russia seeks to secure fertiliser minerals
for its growing agricultural industry (see IM February
It is through future demand rather than supply of potash
where Russia may play the most important role in the coming
The Russian government is seeking to reduce its reliance on
imported food by boosting its own industry. Last year it was
even suggested that the country may even discourage potash
exports in order to retain the tonnages for domestic use.
The government also opened up the Verknekamskoe deposit
tenements for auction last year. Silvinit paid $1,480m. for
3,500m. potash reserves over three sites, Verkhnekamsk
Potassium Co. paid 708m. for a 1,000m. tonne potash deposit,
and fertiliser group EuroChem paid $172.6m. for a third site
containing 1,000m. tonnes (see IM April 08, p.20:
Russias golden potash future).
Bill Doyle, PotashCorps president and chief executive
officer, said: Russias agricultural industry is
making a big comeback. Over the last 15 years the country has
had an incredible reliance on food imports, particularly from
Finland, with very little domestic produce on the
Doyle explained that Russia has forgotten about the need for
a basic capability to produce its own food.
This sentiment was echoed by K+S Kalis global potash
manager, Friedhelm Mester who told IM:
Russia has been a big producer of agricultural
commodities in former times and we expect [these times to
return to some extent]. The government in Russia is very much
supporting the increase of agricultural production. We will see
whether the mentioned targets can be reached.
Producers are keeping one eye on Russia at present as its
emergence as a significant market depends on the
governments backing of its agricultural industry. The
more tangible markets are China, India, and South East
| Emerging producers
||Production estimate (tpa)
|Iran Mineral Production & Supply Co.,
||Khor playa, Iran
|Asian Potash, Thailand
|Asian Pacific Resources, Canada
|Amazon Potash, Canada
||Amazon Basin, Brazil
|Allana Resources Inc, Canada
||Danakil Depression, Ethopia
|MagIndustries Corp., Canada
||Kouilou, Rep. of Congo
|Marafil Mines Ltd, Canada
||K-2, Neuquen Basin, Argentina
|Potash One, Canada
||Legacy Project, Canada
|Raytech Metals, Canada
||Spar Property, Canada
||Potasio Rio Colarado, Argentina
|Intercontinental Potash Corp, USA
||4 projects, south-west USA
Belaruskali is Europes leading producer of potash with
an 8m. tpa production from Soligorsk over four mine sites and
additional refinery complexes.
As is the trend in todays potash industry, the company
is expanding operations by 2m. tpa to 10m. tpa. Belaruskali is
expected to open its new Krasno-slobodksy mine this year, and
the Berezovsky mine within the next three years.
Belaruskalis predominant market is Asia (40%), Latin
America (21%), and Europe (42%). It also sells to North America
(10%), CIS (5%), Africa (2%) and the Middle East (1%).
The company sells its product through agent, Belarusian
Potash Co (BPC), in the same way Canadas producers use
Canpotex. Uralkali also sells it product through BPC.
Up until 2005 Belarusian potash sales were mediated by
Moscow, a deal which the country claims cost they
substantial profits. This changed when, in April
2005, BPC was established as a joint-venture between the
Belarusian and Russian governments.
Vladimir Semashko, First Deputy Prime Minister of Belarus
explained: In less than three years Belarus has learnt to
effectively sell its own strategic product - potash
fertilisers. Weve learnt not only to sell fertilisers but
also dictate terms of the market.
K+S AG, Europes leading potash producer, like its
Canadian counterparts has announced cuts of up to 1.7m. tpa
potash from its 8m. tpa capacity.
The German producer, which sources potash from subsidiary
K+S Kali GmbHs five underground potash mines, initially
cut 400,000 tpa potash at the end of last year and recently
announced its intention to shed a further 1.3m. tpa gradually
Norbert Steiner, chairman to the board at directors at K+S,
said: There was a reduction in potash production of 10%
in 2008... Trade at present is sitting on relatively high
stocks. Our deliveries of potash depend on the stock holding
warehouses and they are still full.
Peter Rummel, K+S European potash manager told
IM: The market is slow and depressed
because of the low prices the farmers are receiving for their
K+S is also the target of EuroChem MCC OJSC, one of
Russias largest fertiliser groups, which last month
revealed that it may increase its 15.001% stake in the
As uncertainty surrounds the future of Russian potash
exports investing in sources outside of the country appears a
Israel Chemical Ltd
Israel Chemicals Ltd (ICL) through ICL Fertilisers extracts
potash from Dead Sea brine resources in Israel and underground
rock mines in Derby, UK (Cleveland Potash Ltd), and Spain
(Iberpotash). In 2008 ICL operates at capacity producing 5m.
tpa, equating to 9% of world production.
Potash sales accounted for 64% of ICL Fertiliser sales; ICL
Fertiliser represents 48% of ICLs business.
ICL is increasing its Dead Sea brine capacity by 500,000 tpa
(to 5.5m. tpa) over two years, and upping output in the UK and
Spain by 300,000 tpa through processing equipment
Despite experiencing a slowdown in business, ICL has not yet
reported any production cuts.
In 2008 Vale produced 607,000 tpa potash (from a 850,000 tpa
capacity) from its underground Taquari-Vassouras mine, located
in near Rosario do Catete in Sergipe state, Brazil. This was
64,000 tpa less than 2007.
Owing to the demand slump the company stopped potash
production in November 2008 for a month which resulted in the
lower figures. 2009 is expected to show a further decline.
SQM SA operates a 550,000 tpa brine potash mine in the Salar
de Atacama, Chile and the second leading potash producer in
South America. When IM visited SQMs
operations in January, the company was not operating at
The USAs sole producer is Intrepid Potash which has a
capacity just shy of 900,000 tpa from mines in Utah and New
Iran has recently made a $98m. foray into the potash market
by establishing a 50,000 tpa brine production through Iran
Potash Co. Production is based in central Kavir near Khor city
(see IM June 09 for a review of Iran Potash
It is difficult to pick out the serious contenders from the
pretenders in the emerging potash producing community.
Potashs rise to fortune put the expensive start-up cost
of between $1,500m.-2,000m. for an underground mine into
perspective and has attracted a number of new companies.
The accompanying table on the previous page highlights
emerging global production.
Is potash needed?
Despite being the only natural or synthetic source of the
potassium one of the key three agricultural nutrients in
addition to nitrogen, and phosphorous many believe
potash application is not deemed necessary.
Potash has a higher residence time in the soil which can
mean its application is not required as frequently as that of
nitrogen or phosphates.
On this Bill Johnson of PotashCorp explained to
IM: It is true that potash can build up
some credits in the soil. Some farmers are running the numbers
on whether to use potash and trying to figure out the right
mix, but we believe yields increase significantly [with
Johnsons last point on yields is not refuted. The
challenge however is persuading or educating
developing economies that investing in higher priced potash
fertiliser will return larger yields a risk many are not
willing to take.
Norbert Steiner, chairman to the board of directors at K+S,
said: Small scale farmers [particularly in Africa and
Asia] learn from their grandfathers that they can avoid
fertiliser application... but a decision on quantity and
quality has to be made.
| Potash trade routes
Market upturn, but when?
It would be fair to assume that potashs necessity in
agricultural and food production for the growing world
population would secure a very bright future for potash. But
PotashCorp, at least, is not taking anything for granted.
On this sentiment, Johnson explained: It is not as
simple as that. Who would have thought that our banks [USA and
UK] would be nationalised by their respective governments.
There are other outside factors weighing on the
German producer K+S expects its Q1 2009 potash fertiliser
sales to be much reduced, however it expects to
begin to see shoots of recovery as early as the end of Q2
K+S global potash manager, Friedhelm Mester, explained
to IM: We expect a certain recovery for
the second quarter of the year. In many regions of the world
this is also the start of the fertiliser season. For the second
half of 2009 we expect a situation close to normal.
On the medium (five years) to longer term (ten years) Mester
said: The growing world population, resulting in higher
demand for agricultural commodities, will also lead to a higher
application of fertilisers.
Because of limited arable land availability, an
increase in crop production only can be reached by harvesting
higher yields from the land. The application of fertilisers is
the most effective way increasing yields per hectare.
Furthermore, the future prospects for potash will be above
average. One answer to the question how do you increase
yields? is balanced fertilisation. In some of the crop
growing regions this balance has not been reached
PotashCorp believes the downturn will last longer. Johnson
explained: 2008 was a fantastic year for us with sales
tailing off at the end. We expect 2009 to be a mirror image of
this, starting slow with sales eventually picking up.
Nothing in life is guaranteed, particularly in todays
global state of affairs, but the need for food strikes at the
very core of human existence. The most significant fact is that
the global population is on course to rise from 6,900m. today
to over 8,300m. in the next 15 years.
The population is the central reason why the worlds
potash producers are scrambling to expand capacity, even at
this time of very low demand. Norman Borlaug, Nobel Peace Prize
winner for bringing food self sufficiency to Saudi Arabia,
summed up the challenge: The world will [house] two
billion more people than it can sustain and I dont see
two billion volunteers. Its just that simple.
The other major factor is the worlds changing diets.
As economies such as China and countries in South East Asia
emerge, diets are shifting from pulse and rice based to protein
(meat and diary based increasing the need for grain feed),
fruit and vegetable based.
For example, in China between 1990 and 2005 cereal
consumption fell by 20% while the following increases occurred:
meat by 130%, oilseeds by 140%, vegetables by 190%, milk by
200%, and fruit by 250%.
The other two factors that will play a major part in
securing potashs future are:
- Land: availability of arable land is diminishing while
over-farming of existing land damages present capacity. The
Amazon Basin, Brazil and the Urals, Russia are the last
remaining great expanses of arable land.
- Biofuels: ethanol and biodiesel production has increased
significantly as oil reserves diminish. Biofuel is one of the
favoured technologies to reduce the worlds dependency
on oil-powered cars, but it is land intensive. Despite talk
of the moral issues here (food versus biofuel), potash will
be needed to make the most of the land either way.
Luc Maene, director general of the International Fertilizer
Industry Association, summed up the seriousness of the issue:
The fertiliser sector will be at the heart of
humanitys greatest challenges over the 21st
century... [in this light] food production and security of
supply will be central to many government agendas in the
There is an old adage which says: Nothing in life is
certain but death and taxes. Perhaps more fittingly for
the 21st century and future demand for potash should
be added to the list.
But at a cost of $2,000m. for each new underground potash
mine, the question is: how many companies will want to take the
Focus on Canada
Canada is the world leading potash producing country with
production supplied by three producers: Potash Corp. of
Saskatchewan Inc., The Mosaic Co., and Agrium Inc. All of
these producers sell their product through the marketing agent
Canpotex International PTE Ltd which sells to Chinese, Indian,
South East Asian, and South American markets.
The three producers operate eleven mines between them, ten
of which are located in the central province of Saskatchewan
the exception is PotashCorps New Brunswick mine in
the east of Canada.
PotashCorp dominates production operating seven of
Canadas potash mines with a capacity output of 11-12m.
tpa which it is presently extending to 18m. tpa. Mosaic is
second with a 10m. tpa capacity from its three mines, and
Agrium third with 1.8m. tpa production from its Vanscoy
All producers in Canada have embarked on medium to long term
expansion plans with PotashCorp raising its production to 18m.
tpa over the next five years, Mosaic by the same amount in 11
years, and a possible Agrium expansion by 3m. tpa in six
||Capacity (m. tpa)
|PotashCorp (mined by Mosaic)
||Esterhazy K1 & K2
BHP/PotashCorp careless talk?
The latest rumour to involve BHP Billiton, the worlds
largest mining company, is a takeover move for the worlds
largest potash producer, PotashCorp. Despite the origins of
this rumour being described as careless talk with
little foundation, it does raise some intriguing talking
Since BHPs failed Rio Tinto Plc bid, the group has
been paired with a raft of mining companies in every possible
scenario: flagging miners, miners showing strength through the
recession, struggling miners with future promise... the list
But there is one good reason why, since originating, the
BHP/PotashCorp rumour has circulated through analyst and
banking circles faster than potashs rise to fortune: it
is because it appears to make complete sense and follows the
new global economic mantra of sustainable, sensible
Last year BHP Billiton made a concerted effort to be seen to
be diversifying into the fertiliser minerals market. In May
2008, the group purchased its first potash asset, Canadian
junior miner, Anglo Potash Ltd, for $284m. This was swiftly
followed by BHP chief, Marius Kloppers, publically asserting
the companys fertiliser minerals plan.
We have an absolutely world class potash resource in
Canada explained Kloppers in June 2008, which is
based on the view that agricultural commodities will go the
same way as metals orientated minerals.
As if BHPs intentions were not clear enough, at the
end of 2008 it submitted a 239-page proposal to the
Saskatchewan Ministry of Environment, Canada, for its Jansen
Potash Project which, if given the green light, would be the
worlds largest potash mine in 2016 with a 8m. tpa output
This is significantly larger than the worlds largest
mine at present, the 5.3m. tpa Esterhazy mine in Saskatchewan,
Canada owned PotashCorp. and mined by Mosaic.
IM contacted both PotashCorp and BHP on
this issue with both companies responding with the expected
no comment, not wishing to fuel any rumours.
Some quarters believe that PotashCorp would be too big for
BHP, especially with credit supply drying up, and see The
Mosaic Co. which has changed ownership three times in
recent years and Agrium Inc. more manageable and
As the worlds markets crashed it was thought by some
that the end of potash heyday had come, and the interest it had
conjured in 2008 would evaporate as quickly as it arrived. This
has not happened.
As investors and mining companies saw the metals markets
crash around their feet, the spotlight has turned onto
fertiliser minerals which is the closest market to metals in
terms of volume and value.
Certainly, if BHP wants to get serious in the fertiliser
business, then buying PotashCorp in a multi-billion-dollar coup
will be the ultimate statement of intent.
Potash pricing has held firm despite the dire market demand
experienced over the last six months as producers scrambled to
cut production and steady prices.
Contract prices in 2008 rose to a record breaking
$800/tonne, while two years earlier the same product was around
$180/tonne. Spot prices threatened to crash through the
$1000/tonne barrier, but this never materialised.
K+S presently values its muriate of potash at
600/tonne for FOB Europe while Belarusian Potash
Co.s $750/tonne CFR sale to Brazil has recently got the