IM 2012 Round-ups: Potash

By Kasia Patel
Published: Friday, 21 December 2012

Although the global uncertainties which hung over 2012 could continue to affect the fertiliser industry in the short term, the sector has strong long-term fundamentals as the scenario for fertiliser minerals is simple: people need food and therefore fertilisers.

Although the global uncertainties which hung over 2012 could continue to affect the fertiliser industry in the short term, the sector has strong long-term fundamentals as the scenario for fertiliser minerals is simple: people need food and therefore fertilisers.

In 2012, the fertiliser industry, which had returned to pre-crisis levels during 2011, started to experience the effects of the global economy weakened by the European debt crisis, the slowdown in China, the downgrade of the US debt and US drought, in addition to major markets, such as India, putting downwards pressure on prices.

Major fertiliser end markets, such as China and India, postponed purchases in 2012, and the consumption in these countries was lower this year than initially expected.

Fertiliser producers, who had previously announced a positive 2012 outlook for potash, had to scale back production and cut forecasts.

Production cuts

At the end of 2011, Uralkali revised its initial 2012 outlook estimates from early December owing to the economic uncertainties, saying it would produce about 7% less potash than previously planned, as it looked to support prices for the crop nutrient and reduced its initial 2012 production forecast to 10.5m tonnes from 11.8m tonnes.

By October 2012, the Russian potash producer had to again revise its previous forecasts for 2012, cutting its projections by 700,000 tonnes for Q4 due to poor market conditions, specifically in India and China.

In February 2012, US-based fertiliser producer The Mosaic Co. also announced it would cut potash production by up to 20% from February through to May 2012.

Mosaic again revised its price and volume guidance in November 2012, saying that, although its previous guidance excluded shipments to India and China, its revised figures reflect lower near-term demand and a decline in international shipments for other countries as well.

At the end of 2011, leading producer PotashCorp. of Saskatchewan decided to temporarily close two of its mines in Lanigan and Rocanville in Saskatchewan, Canada, owing to soft potash demand.

India and China delays

The largest uncertainty for many companies remained the question of Chinese and Indian contracts.

In the first half of the year, potash producers were severely affected by contract delays, as the major Chinese and Indian end markets postponed purchases and reduced 2012 targets, seeing leading potash and phosphate producers forced to cut production.

However, expectations are that drawing on China’s inventories will lead to increased sales volumes for potash in 2013, and so new contract negotiations have been constructive and ongoing.

While fertiliser mineral prices have increased throughout the last year, India, relying on its position as a leading consumer, tried to push prices down, notably for potash.

Food inflation remains an issue in India, although it is unclear when, or how, India will address its current soil fertility practices which, if continued, hold strong implications for lower long-term crop yields.

Projects in the pipeline

Demand is still anticipated to increase significantly to meet the needs of fast-growing economies such as Brazil, China and India.

As a result, it is estimated that about 170 new projects are being developed worldwide.

BHP Billiton PLC is planning to enter the potash industry through its Jansen potash project near Lanigan in Saskatchewan, Canada. Estimated potash resource is 3.37bn tonnes grading at 25.4% K2O.

Germany-based potash producer K+S AG will invest C$3.25bn ($3.13bn) to produce 2m tpa potash from 2017 and reach 2.86m by 2023 at its Legacy potash project in Saskatchewan, Canada. This could be expanded to 4m tonnes by 2034.

Russian potash producer Uralkali is going through a number of developments to take advantage of the anticipated opportunities in the potash market. It will boost capacity by 80% during the next 10 years at its operations in the Ural Mountains of the Perm region in Russia, owing to its “confidence in underlying potash market dynamics,” it said.

EuroChem has decided to become a major potash player through two new projects. Starting from scratch, EuroChem is targeting a total potash capacity of 7.7m tpa in Russia within a decade.

UK-based Sirius Minerals PLC announced this year that, following a scoping study, it targets 2017 to start production at its proposed $2.7bn York Potash mine in North Yorkshire, on the north-east coast of England.

Verde Potash PLC is developing its open-pit Cerrado Verde potash project in the western part of Minas Gerais state, Brazil, looking to produce between 1.1-2.2m tpa potash from H2 2013.

Surplus production

These new projects, expected to come on stream during the next few years, will significantly boost global potash output, bringing the risk of a potential surplus if it outpaces consumption.

According to France-based International Fertilizer Industry Association (IFA), the industry could face a potential surplus of 7.9m tonnes during the next four years.

However, large companies, such as PotashCorp, remain confident that the market will not be oversupplied, saying that demand for potash could dramatically increase and reach roughly 53m tonnes for 2012 and between 56-60m tonnes for 2013.

Demand for fertiliser is steadily increasing in response to supportive agricultural market fundamentals, the IFA revealed in its ‘Medium-Term Fertilizer Outlook 2012-2016’.

However, following news that PotashCorp. was to implement more mine closures, and Vale was to put its $3bn Saskatchewan potash project on hold, together with the IFA’s report speculation remains that potash oversupply is still a distinct possibility.

Vale puts potash on hold

In August 2012, Vale announced it was to postpone its $3bn potash project in Saskatchewan. Construction of the company’s 2.9m tpa potash mine was scheduled to begin towards the end of 2013 near Kronau, about 30km southeast of Regina.

However, in December 2012 the company said that it would put its Canadian Kronau potash assets up for sale to focus on developing other projects (see p.15).