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
Fertiliser producers, who had
previously announced a positive 2012 outlook for potash, had to
scale back production and cut forecasts.
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
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
The largest uncertainty for many
companies remained the question of Chinese and Indian
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 Chinas 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
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
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
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
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.
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 IFAs report speculation remains that potash
oversupply is still a distinct possibility.
Vale puts potash on
In August 2012, Vale announced it
was to postpone its $3bn potash project in Saskatchewan.
Construction of the companys 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