By Wayne Yamada
The global potash market is
expected to remain bullish until 2017 due to high barriers to
entry for new miners and the ability of existing producers to
control supply, the findings of a new report by French
investment bank Societe Generale (SocGen) state.
The bank forecast that potash
prices will rise until 2017, with Brazilian prices increasing
by around 13% from current levels while Chinese prices will
increase by 15% and European prices will climb by 11%.
We reiterate our more bullish
than consensus outlook for the potash sector, SocGen
We believe the consensus is
too bearish, due to expected supply additions in the medium to
longer term, the bank added.
High profits in 2007-2008 and
2010-2011 led many potash producers to pursue expansion
projects, but few are likely to start producing significant
volumes for another three years, which should keep potash
Beyond 2017, the Southeast Asian
nation of Laos could become a significant producer of potash,
Laoss potash capacity is
likely to increase from a current 650,000 tpa to around 5m tpa
over the next decade, due to Chinese investment in the
countrys mining industry.
The Laos government banned some
mining projects in 2012 due to environmental issues, but has
since reviewed projects in 2014, including iron ore, copper,
and potash developments.
While there is still considered to
be significant risk of causing damage to the environment by
mining potash in Laos, the backing of Chinese investors may
override government concerns.
SocGen also expects projects in
other parts of the world to come online from 2016. German
fertiliser company K+S AG is slated to bring a 2m tpa potash
project online in Saskatchewan, Canada, in 2017.
Russian potash producer EuroChem
won bids to develop potash mines in the Verkhnekamskoe deposit
in Russias Perm region in June this year, while TSX-V
listed Allana Potash is developing the Danakil project in
Other potash projects include Mag
Industries Mengo development in the Republic of Congo, IC
Potashs Ochoa project in New Mexico, US, and Vales
Sergipe potash project in Brazil.
Meanwhile, BHP Billitons 10m
tpa Jansen potash project in Saskatchewan, Canada, is not
expected to be commissioned until 2025, due to the
companys indecision about whether to continue developing
Concerns over Jansen include the
cost of development, which was estimated at $15-$16bn, at a
time when the company is under pressure to cut spending and
divest non-core assets.
We believe it will take
another three years to complete the excavation work [at Jansen]
and then a further three years to start production. Thereafter,
we assume another three to five years of capacity
ramp-up, SocGen commented.
This suggests the Jansen
project should not be fully operational until 2025, a good ten
to 11 years from now, it added.
BHP has already reduced spending on
the project and has said that it does not expect Jansen to
start production until at least 2020.
Learning these dynamics, BHP
is now waiting for a recovery in potash demand while looking
beyond this decade to bring its mega project into operation.
Highly leveraged new entrants would need at least $400/tonne of
potash prices just to service their debt costs, the bank
Idled capacity at
Canadas Potash Corp of
Saskatchewan (PotashCorp) also has the option to increase
production, but has intentionally idled capacity of around 5m
tpa in view of current uncertain pricing and demand
The companys nameplate
production capacity is around 18.1m tpa, but PotashCorp has
said it will be operating at 12.5m tpa until 2016.
However, PotashCorp may not be able
to produce at full capacity, even after 2020, due to concerns
about oversupplying the market.
We will have to see how
PotashCorp responds to various new capacities which will start
production from 2016-2017 onwards. As the industry leader,
PotashCorp has so far maintained discipline and we can expect
the same behaviour in the coming years as well, SocGen
Overall, global demand for
potash-based fertilisers continues to increase. SocGen predicts
growth in Asia, due to the continents growing national
populations, and Brazil, where the soil is deficient in
Brazil is the worlds largest
corn exporter and potash demand is expected to reach over 10m
tonnes by 2018, compared with just over 8m tonnes in 2012.
Chinas potash consumption has
grown around 5% per year since 2000, primarily driven by growth
in domestic fruit and vegetable acreage. Potash consumption was
forecast to reach around 12m tpa by 2016, doubling levels seen
In India, rice and wheat drives potash demand, with potash
consumption set to hit 5m tonnes by 2019, compared to under 3m
tonnes in 2013.