Potash and phosphate: Year in Review 2015

By IM Staff
Published: Monday, 21 December 2015

A roundup of the year's main events in the global potash and phosphate industries.

As in 2013 and 2014, potash continued to be the volatile focal point of the agriminerals markets, while the phosphate industry remained relatively stable. 

SUPPLY SECURITY

Heading into 2014, the implications of the flooding of Uralkali OAO’s Solikamsk II mine in Russia were among the chief supply concerns facing the potash industry. Solikamsk II represented a fifth of Uralkali’s capacity, and, by the end of 2015, the company had not been able to recover the mine, having pulled equipment out of the site in February.

Israel Chemicals Ltd (ICL) saw production across its potash and bromine arms disrupted by industrial action in Israel for much of H1, which eventually led the company to further invest in its potash interests in Spain and purchase Allana Potash Ltd, the Canadian developer of the Danakil sulphate of potash project in Ethiopia. The strike action was attributed to the publication of the Sheshinski Committee II extractives industry tax review findings, which were eventually implemented in late November. ICL claimed that the financial burden of the new tax regime would result in the "most extreme" business environment and taxation in the extractive industries worldwide, leading it to implement job cuts and reduce investments in Israel. 

Also making the headlines for negative reasons in 2015 was Sociedad Quimica y Minera (SQM). Its CEO, Patricio Contesse, was ousted following a number of revelations about the company’s business dealings in 2014 and 2015. SQM’s potash operations remain relatively stable, but ructions over the company’s lithium and iodine businesses posed question marks over its medium-term cash flow.

In April, Highfield Resources Ltd released a positive definitive feasibility study for its low production cost Muga project in Spain. Highfield has a finance facility organised with a syndicate of banks, which was awaiting approval at the end of 2015.

Possibly the biggest story of the year was the attempted takeover of Germany’s K+S AG by Canada’s Potash Corp. of Saskatchewan Inc. (PotashCorp). Delivered to K+S executives in June 2015, PotashCorp initially offered a €41/share ($45.19/share*) deal. This was rejected by the German company’s management in July. PotashCorp withdrew its bid in October after repeated attempts to woo the company, stating that market conditions for the purchase had deteriorated, despite saying only weeks before that the deal was even more attractive than when it was originally proposed.

Sirius Minerals Plc saw its polyhalite mine approved in northeast England over the summer and began seeking funding to advance the project.

In Brazil, Vale SA put its Kronau project on ice in late 2015, noting financing difficulties for large capital projects in tough market conditions. BHP Billiton, whose work on the Jansen project in Canada continues at a snail’s pace, saw 76 job cuts in early December, though the company claims that this will not affect the development of the project. Macquarie forecasted that potash prices of $400/tonne would be required to yield an acceptable rate of return, rising to $500/tonne to be effective at attracting capital investment over the company’s other projects.

Meanwhile, the phosphate market rumbled on quietly throughout 2015. The largest supply disruption occurred in Tunisia, where ongoing political instability and protests by locals reduced production rates at Compagnie des Phosphates de Gafsa (CPG) to 6m tonnes, down from over 8m tonnes in 2010.

In New Zealand, Chatham Rock Phosphate Ltd (CRP) was disappointed by the Environmental Protection Authority’s (EPA) decision to reject its application for marine consent, a requirement for mining the offshore Chatham Rise phosphate deposit. The company flagged its intention to pursue the EPA for alleged irregularities in its expenses charged to CRP and, at the end of 2015, was working towards a reverse takeover of Antipodes Gold, a TSX-listed company, in order to raise money.

With much of the world’s phosphate reserves based in the Middle East and North Africa, the Islamic State of Iraq and the Levant (ISIL), also known as Daesh and ISIS, was believed to have disrupted phosphate supplies in both Syria and Iraq in 2015, though this was not thought to be connected to the manufacturing of fertiliser bombs.

MARKET DEMAND

Potash demand was generally agreed to be lower in 2015 than it had been the previous year, primarily owing to lower crop prices caused by consecutive record yields, in turn caused by favourable growing conditions in key producing regions.

In Brazil, purchasing weakened on the back of a depreciating currency, increasing relative prices by tens of percent. In China, the introduction of VAT may reduce demand in the medium term, analysts said.

PotashCorp said it expected total demand volumes of 58-60m tonnes for 2015, with actual volumes likely to be towards the lower end of this range.

For phosphate, the Mosaic Co. said it estimated total 2015 shipments of 65-65m tonnes.

PRICE TRENDS

Potash prices, which held firm for most of the year, declined in the second half by around $10/tonne, as the market realities of oversupply once again took their toll on the market.

For phosphate rock, prices firmed in 2015, rising by around $10/tonne. PotashCorp noted in a report published towards the end of the year that Indian farmers had adjusted to market deregulation and that demand for the mineral was up.

MARKET OUTLOOK

The outlook for potash is defined by overcapacity. The decline of the Russian and Belarussian rouble, and the Canadian dollar, is likely to sustain high-cost production in the medium term, however much depends on crop growing seasons and yields, which can be suddenly and severely impacted by weather events.

For phosphates, supply is equally secure, though industry observers have warned that instability in the Middle East and North Africa regions should be considered a low-likelihood but high-potential impact source of supply insecurity in the medium term.

*Conversion made December 2015