There is no doubt that the last
year has been a tough one for the potash industry. While
producers entered 2013 with optimistic expectations for the
market, recovery from the collapse of the commodities boom was
slow to materialise, and, just when demand began to pick up
mid-year, changes in the structure of the market once again
However, lower potash prices seem
to have restored some demand and recent agreements between
producers and buyers, specifically in China, indicate that they
are unlikely to fall any lower. Now potash producers and
juniors alike have once again entered into a new year with the
hope that the worst is behind them.
The vast majority of potash is
found in Canada and Russia, which hold potash reserves of 4.4bn
and 3.3bn tonnes respectively, of the worlds 9.5bn tonnes
total, according to the US Geological Survey (USGS). Figures
from Russian potash producer, Uralkali, indicate that the
oldest reserves in Russia were formed between 275m and 290m
years ago, while Canadian deposits formed around 370m years ago
under the earths surface. Deposits in the UK, Germany and
Brazil formed underground between 250m and 120m years ago.
Potash from these older deposits is
extracted via conventional mining, and production from newer
reserves in Chile, China, Israel, Jordan and the US comes from
salt lakes. Currently, approximately 80% of potash is obtained
through mining, 12% from water evaporation from salt lakes and
the Dead Sea, and 8% from the underground water dissolution of
The majority of potash is consumed
by the fertiliser industry, as potassium is an essential plant
nutrient with no substitute. Although manure and greensand are
other sources of fertiliser, these are low-potassium options
which can only be transported short distances.
The most recent figures from the
USGS show that over 60% of potash produced in the US in 2012
was muriate of potash (MOP). Other types of potash required by
specialist crops, such as sulphate of potash-magnesia (SOPM)
and sulphate of potash (SOP), were also produced.
Following the pattern of global
potash reserve distribution, the major producing companies are
located in North America and Eastern Europe.
PotashCorp. is the leading potash
producer in terms of global capacity. The company owns six
potash mines in Canada with a total capacity of 11.9m
Lanigan (3.8m tpa) and Rocanville
(3m tpa) are the companys two biggest potash mines,
before Allan (1.9m tpa), Gary (1.4m tpa), Patience Lake (1m
tpa) and New Brunswick (0.8m tpa). PotashCorp. sources its
potash from deposits in Saskatchewan, and is currently
expanding its production capacity for which, at the close of
2013, estimated expenditures for its multi-year expansion
programme were 92% complete.
Producing the three main fertiliser
nutrients, nitrogen, potash and phosphate, Agriums sole
potash plant at Vanscoy, Saskatchwan produces just over 2m tpa
potash, making it the 10th largest potash producer
The Mosaic Co.
As the leading fertiliser producer
in the US, Mosaic has a larger phosphate production capacity,
but the company also has the capacity to produce 10.4m tpa
potash. However, Mosaics production has dropped since
2012, its most recent figures indicate the company was
operating at 65% of operational capacity over the fourth
quarter of 2013.
Together with Agrium and
PotashCorp., Mosaic owns Canpotex, an international marketing
and logistics company which markets and distributes potash from
Saskatchewan globally to Asia, Latin America and Oceania.
Despite recent challenges faced by
the market, Mosaic is one of a handful of existing potash
producers that continues to expand its production facilities,
and, in the fourth quarter of 2013, the company completed a
successful run at its Saskatchewan Esterhazy mine.
[The run] exceeded the
expansions design capacity by 20%. As a result,
Mosaics Canpotex sales allocation increased from
approximately 39.9% to 42.5% beginning in January of
2014, Mosaic said.
The companys full expansion
is expected to be completed by 2021, and is taking place at
Belle Plaine, Colonsay, Esterhazy K2 and Esterhazy K3.
Intrepid Potash is the largest US
producer of muriate of potash (MOP) and according to the
company, it has supplied on average 1.6% of global annual
potassium consumption and 9.3% of annual US consumption.
The companys production
facilities are located in the US, three in New Mexico and two
in Utah with an estimated production of 870,000 tpa potash.
According to its latest set of figures, production for 2013
fell to 780,000 tonnes potash from 790,000 tonnes in 2012,
while sales of potash fell to 692,000 tonnes.
ICL is the sixth largest potash
producer globally, extracting the mineral at Israels Dead
Sea, as well as from underground mines in Spain and via its
subsidiary, Cleveland Potash, in the UK. The company produced
4.93m tonnes potash in 2012, which increased to 5.16m in 2013,
and has a production capacity of 6m tonnes.
The UKs only potash mine,
Cleveland Potash produces over 1.5m tpa potash for fertilisers
and agricultural uses.
The company confirmed last year
that it plans to extend its UK Boulby potash mine from 4.3m tpa
potash to 5.3m tpa potash, creating more than 270 jobs by the
end of 2015. ICL is set to invest £300m ($502m*) in the
area over the next five years.
ICL also confirmed a strategic
alliance with Canada exploration and development company Allana
Potash to develop the Danakhil project in northeast
The feasibility study (FS) for the
proposed mine, located in the Dallol depression of the Afar
province, on the Horn of Africa, indicates that it will produce
approximately 1m tpa potash over five years.
Uralkali holds 20% of the market
share, producing around 11m tonnes KCl. The company has been
operating at close to full capacity, producing 10m tonnes
potash in 2013, and is currently rolling out a major expansion
project. Total projected investment in the expansion is $2.3bn,
which will help to increase its capacity to 15m tonnes by
The programme also includes the
possibility of expanding the designed capacity to 19.2m tpa
through the implementation of the projects stage 2
Polovodovo and Solikamsk -3, now in the design stage. The final
decision on the additional ramp-up will be made in 2015,
depending on market conditions.
previous Belarusian Potash Co. (BPC) partner, exported around
3.7m tonnes potash fertiliser in in 2012, down from 4.7m in
2011. The company is expected to increase its production
capacity to 12.5m tpa by 2020, from 8.8m tpa in 2011.
Another existing producer expecting
to increase production capacity is Germany-based potash
producer K+S AG, with plans to invest Canadian dollar (C)
$3.25bn ($2.9m) to produce 2m tpa potash from 2017 and reach
2.86m by 2023 at its Legacy potash project in Saskatchewan,
Canada. This project could be expanded to 4m tonnes by
The majority of potash produced
globally is consumed by the fertiliser industry, with an
estimated 90-95% of production being used in fertilisers, and
the rest for other industrial purposes.
The USGS predicts world consumption
of potash will grow by 3% a year until 2016 driven by a rising
population and a demand for food and biofuels, and although
there are many new projects in development, existing producers
are hoping to absorb new demand through expansions and
Despite fundamental market drivers
such as population growth and a Westernisation of diets in
developing regions - a growing middle class means more
disposable income to be spent on fruit, vegetables and meat,
all of which require more fertiliser - 2013 was not an easy
year for the industry.
In its 2013 full year financial
results, released in February 2014, PotashCorp. said that
challenging fertiliser market conditions impacted our
performance. In November 2013, Mosaics CEO, Jim
Prokopanko referred to the companys weak results caused
by challenges in the environment in which we
operate, while Uralkalis head of sales and
marketing, Oleg Petrov, described potash demand as being in
a prolonged, steady decline following the demand
highs of 2011. Whichever way one looks at it, 2013 was a
difficult year for the potash industry as demand dropped,
buyers held off from purchases and investors lost
Referred to by some analysts as
the end of the potash world as we know it,
Uralkalis decision to exit from its BPC marketing
arrangement with Belaruskali will undoubtedly be remembered as
one of the defining potash industry moments of 2013.
The company chose to withdraw from
BPC after a meeting with its board of directors on 29 July
2013, opting to direct all export volumes through Uralkali
Trading, following a disagreement with Belaruskali over export
The move was coupled with an
announcement from Uralkali anticipating that increased
competition would put pressure on potash prices, driving them
down to under $300/tonne by the end of 2013, but the company
optimistically added that still, the price is likely to
remain higher than $200/tonne, which is the cost of production
for marginal potash producers.
Although some producers hit back,
disputing Uralkalis price forecast, the initial impact on
the market was tangible.
US-traded shares of PotashCorp.
fell 16.5% to $31.63/share, Mosaic shares fell 17.3% to $43.81,
shares for Intrepid Potash sank 28.6% to $13.89; while Agrium
dropped 5.4%, to $86.50/share.
Uralkalis shares fell 19% to
Russian ruble 151.92 ($4.32), its biggest drop since the end of
2008 while ICL share dropped 17% and K+S shares plummeted by
Major producers were forced to
implement cost cutting measures, and PotashCorp. was one of the
first to announce it would need to reduce its workforce in
response to global challenges faced by the potash market.
With prices hovering just over
US$300-325/tonne, some companies expect that cost containment
will still be the order of the day for even the low-cost
producers, even with a moderate price recovery expected over
the ensuing months.
In spite of price drops and buyers
holding off on purchases hoping for bigger potash discounts,
producers began to see a slight revival in demand at the end of
2013 as lower prices have had a positive effect on demand by
making potash more affordable.
According to ICL, the fourth
quarter of 2013 saw a resumed demand for potash as prices
stabilised, and the company saw imports of potash to Brazil
last year reach 7.6m tonnes, an increase of 3.5% over 2012.
Based on a report published
by the US Department of Agriculture (USDA) in January 2014, an
increase is expected in the ratio of the inventories of grains
to annual consumption, to a level of 20.15% at the end of the
2013/2014 agricultural year, compared with 19.60% in the prior
agricultural year and 20.19% in the 2011/2012 agricultural
year. Most of the increase stems from the inventory of
corn, ICL said.
North American producers also
reported a demand revival, as at the end of 2013 and start of
2014, dealers with limited inventories in North America sought
to ensure tonnage was in place prior to the spring. PotashCorp.
anticipates that this demand will continue, with shipments in
the first half of 2014 will outpacing those in 2013.
Although a return in demand has
been seen in developing countries like China, India is likely
to remain a problematic market for potash producers.
Russia's largest mineral fertiliser
producer EuroChem, who is developing its own source of
potash in Russia and expects raw ore production to begin in
2017, told IM that much of the demand
constraint over the last two years has come from India due to
its outdated subsidy system which is skewed to nitrogen, as
well as a severe currency slide.
elections in May mean that very little spending on subsidies
will take place until a new government is formed and electoral
promises fulfilled, the companys mining director,
Clark Bailey, told IM.
In May 2013, the Indian Government
outlined plans to cut its subsidy on potash and phosphate
fertilisers by 15% in its 2013-14 budget. The subsidy for
diammonium phosphate (DAP) was cut for the second year in a row
to Indian rupee (INR) 12,350 ($199.6)/tonne, a 14% decrease,
while the subsidy for MOP was cut by 22% to INR 11,300
However, Bailey added that with
close to two years of limited buying and application levels in
India, a return in demand should be driven by the need to
replenish the soils nutrient balance.
According to the FAI PIS in
2009 and 2010 India had imports of 5.5-6.0m tpa MOP and this
was down to 2.8m tonnes MOP in 2013. Additionally according to
Fertecon, over the last few years Indian farmers have been
applying an average of 5m tonnes of MOP annually, he
Potash is one of several
underdeveloped minerals in Africa as the continent currently
lacks the capacity to process or consume many of the minerals
it can produce.
Several potash juniors though, such
as ASX-listed Elemental Minerals developing the Sintoukola
potash project in ROC, West Africa, have chosen to invest in
the region. However, where Elemental plans to target South
America with its potash, saying that the African market
isnt there yet, other companies like Allana
Potash anticipate that Africa will become a major power house
with investment from the Middle East, China and Russia.
According to Allana, the African
market is underserviced by the potash market as the entire
continent consumes about 800,000 tonnes potash, and the company
has no doubt that this amount could increase up to 8m tonnes in
10 to 12 years.
The companys project is
located at the Dallol potash site in the Danakil depression,
Ethiopia, a country where traditional farming methods utilise
only two fertilisers to supplement soil nutrient content -
diammonium phosphate (DAP) and urea - neglecting potash
And, Allana has not come up against
some of the issues that other juniors have when working with
local authorities, according to Richard Kelertas, Allana senior
vice president corporate development.
We have found that Ethiopia
is open for business, so the challenges that one would normally
experience in Africa have been largely mitigated to a large
degree in this country, Kelertas said.
remoteness has been a minor issue, but we are in the midst of
the latter stages of securing our debt financing for the
project and are working towards signing on a strategic equity
investor, so in fact the projects location has been an
advantage - a hot climate which is conducive for the
solution mining process, he added.
Before Uralkalis change in
strategy, producers were anticipating a slight downturn in
prices, however the companys shock announcement caused
potash prices to drop by an average of 25%.
PotashCorp said that over the
course of 2013, competitive pressures weighed on all potash
markets and led to lower average realised prices for the fourth
quarter 2013 of $282/tonne and full year $334/tonne relative to
the same periods in 2012, while Mosaic saw its prices fall by
30% year-on-year, with an average fourth quarter 2013 MOP
selling price, FOB plant, of $303/tonne, down from $435/tonne
the previous year.
Now that agreements have been
signed between Canpotex and China, and Uralkali and Chinese
buyers for around $300/tonne, existing producers and potash
juniors alike are optimistic that at least prices will not sink
We cant predict with
certainty what global prices will do in 2014, but the initial
signs of a moderate pricing revival are becoming more
evident, Kelertas told IM.
He added that should a repair in
the marketing agreement between Belarus and Russia come into
effect, it should help push prices up as it had a significant
positive impact on pricing when the partnership was in full
Though Uralkali has said that it
was too early to tell yet, the reinstatement of BPC would
create underlying support for potash prices and the hope that
potash production will pick up again in the future.
Many potash producers believe the
lull in demand recently experienced by the industry to be
cyclical in nature, and predict that while 2014 may still be
difficult that the fundamental drivers of fertiliser demand
Record crop production in
2013 has led to a significant agronomic need to replenish
essential soil nutrients. We expect farmers, especially those
in more developed agricultural economies, will strive to
increase their soil productivity in order to maximize returns
from each planted acre, PotashCorp. said.
The company predicts that global
shipments for 2014 could be in the range of 55-57m tonnes, an
increase of around 5% from 2013 levels.
China is expected to remain a big
driver of demand for potash, as improved product affordability
and a desire to increase domestic food production to help
counterbalance rising grain imports will motivate consumption
growth, and 2014 potash imports are expected to be above 2013
levels, while solid demand is also being seen in Latin
The world in general is
under-applying potash and for crop yields to increase and just
keep pace with global food demand growth over the longer term,
application rates of potash have to increase and by significant
amounts, Allanas Kereltas told
In the immediate term, global inventories are
beginning to drop and the spring plant and advance fertiliser
buying patterns suggest a better tone to the overall demand
segment of the market.
Potash prices to grow, say Goldman
US banking group Goldman forecast that demand for potash will
grow 4.3% in 2014 to 55.7m tonnes and by 3.4% in 2015 to 57.6m
This follows a 15.6% fall in demand
in 2012, but prices were maintained due to a simultaneous 21.1%
fall in production, which kept the market in balance.
Prices were expected to fall below
$300/tonne after the breakup of BPC, with Goldman predicting at
that time that prices would fall to $275/tonne, due to
increased competition and additional volumes on the market.
These extreme price falls did not
materialise, however, with producers taking firm control of
supply and keeping prices stable.
The supply dynamics have
recently changed in favour of better producer discipline, and
we upgrade our price forecasts for 2014 and 2015 to $318/tonne
(up 13%) and $310/tonne (up 3%) respectively, Goldman
commodity analysts said.
They added that prices bottomed out
at $320/tonne after North American producers slashed
production. This included Canadas Potash Corp. idling
around 2m tpa potash.
In our view, Potash Corp. is
a low cost producer so the fact that the supply response came
from them rather than from competitors higher up the industry
cost curve is surprising, even if the facilities in question
have not been closed permanently and may resume production once
conditions improve, Goldman said.
Other bullish factors include
reports that Uralkali and Belaruskai may be willing to revive
the BPC joint venture, after Uralkali appointed Dmitry Osipov
as its new CEO to replace Vladislav Baumgertner from 24
Baumgertner was arrested in
September 2013 in Belarus, following a meeting with Belarusian
Prime Minister, Mikhail Myasnikovich.
Despite these factors, Goldman also
warned against a runaway bull potash market, citing additional
mines coming online adding more production to the supply chain,
which will more than offset mine closures.
In our view, the backdrop of weak crop prices and the
fresh memories of the collapse in producer discipline at BPC
and the resulting demise of the potash price premium make it
unlikely that producers will be able to secure significant
price increases this year, Goldman concluded.