For the most effective a part of a decade the potash market struggled with overcapacity and low costs. However as sanctions throttle provides of the fertiliser from Russia and Belarus, which account for nearly 40 per cent of worldwide provide, consumers are scrambling for cargoes and warnings are rising of a world meals disaster.
In Brazil, an agricultural powerhouse, costs have surged 185 per cent over the previous yr hitting information above $1,100 a tonne, in line with commodities consultancy CRU. In Europe they’re up 240 per cent to €875 a tonne.
Mined from underground deposits fashioned in the course of the evaporation of historical seabeds, potash is a mineral wealthy in water-soluble potassium, one of many three important vitamins required for crop development. Essential to the manufacturing of meals staples similar to corn, soy, rice and wheat, a sudden plunge in provide threatens to devastate international crop yields.
Producers at the moment are seeking to capitalise on the surge in potash costs and geopolitical tensions which have upended conventional commerce flows and highlighted the significance of safety of provide.
BHP is weighing whether or not to deliver ahead manufacturing from Jansen, a $5.7bn potash mission within the western Canadian province of Saskatchewan, to 2026 fairly than 2027.
The world’s greatest miner has additionally began research right into a second-phase enlargement of the mission, which might double potash manufacturing to 8mn tonnes a yr.
“The tragic occasions of latest months have highlighted the upper than standard potential for supply-side disruption on this market,” BHP chief government Mike Henry instructed traders at convention in Miami final month. “This has positively bolstered the choice we’ve taken to enter potash.”
Backers of a delayed $2.5bn potash mine within the Amazon rainforest that will be the most important within the area have renewed a push for authorisation. To acquire the mandatory environmental licences, Brazil Potash should seek the advice of native indigenous individuals.
“Topic to securing the required funding, the corporate will then begin building ideally at this yr finish,” stated Matt Simpson, chief government of the corporate, which is owned by Toronto-based service provider financial institution Forbes & Manhattan. “Assuming building begins at this yr finish, potash manufacturing may start three to 4 years later.”
Smaller exploration firms, in the meantime, are elevating cash to start out or full new initiatives in politically secure jurisdictions.
Highfield Sources, an Australian-listed firm that plans to start out improvement of a potash mission in Spain this yr, is near securing a €312.5mn financing bundle from a consortium of European banks and has began talks with potential companions.
“We’ve seen an enormous distinction within the degree of curiosity because the struggle in Ukraine,” stated its chief government Ignacio Salazar.
On the opposite aspect of the Atlantic, Canada’s Western Potash has simply secured a C$85mn mortgage from Appian Capital, a London-based non-public group, to fund improvement of its Milestone mission in Saskatchewan, whereas shares in Purpose-listed Emmerson, which owns the Khemisset mission in Morocco, have jumped 30 per cent this yr.
“For those who’re an exploration improvement firm in the meanwhile, you’re spending each cent you may get your palms on touring round Wall Road and Toronto and London, attempting to speak to hedge funds and personal fairness and others, attempting to boost cash,” stated Allan Pickett, head of fertiliser evaluation at IHS Markit.
The present surge in potash costs is especially a results of Belarus not having the ability to discover a method into worldwide markets due to EU and US sanctions and after neighbouring Lithuania blocked entry to its railways and ports.
Belarus is presently promoting about 5 per cent of its regular volumes, principally to China, though it’s prone to work out a technique to entry Russia’s Baltic ports, in line with Pickett.
“There are international locations that won’t essentially be squeamish about shopping for from Belarus. At which level there’s [volume] bounce again out there and pricing comes down and a whole lot of warmth disappears,” he stated.
However whereas the potash market has a historical past of growth and bust courting again to the Nineteen Sixties, analysts and trade government consider that even when costs cool, they’ll stay above the long-term common.
At a latest convention Germany’s Okay+S stated a brand new ground worth of $500 a tonne was attainable — half the present spot worth however double the typical worth of the earlier decade.
In a presentation printed final yr, BHP forecast “future achievable” potash manufacturing of 86mn tonnes in 2030, up from 76mn tonnes in 2020. Now, nevertheless, analysts reckon that estimate might be onerous to realize as a result of many of the new provide was anticipated to come back from Russian and Belarus.
“If these initiatives are delayed and even cancelled outright due to points round entry financing then perhaps you may see a scenario the place provide is actually tighter for a extra extended interval,” stated Humphrey Knight, head of potash evaluation at CRU.
Belarusian group Slavkaliy was compelled to droop improvement of its 2mn-tonnes-a-year Nezhinsky mine due to difficulties acquiring a mortgage. Analysts say there are additionally query marks over the funding of Talitsky, a mission being developed by Russia’s Acron.
Tasks similar to Highfield’s Muga are comparatively small-scale so not sufficiently big to make a distinction globally, though they may assist stability regional provide and demand.
“Europe is realising it must be self reliant and is beginning to have a look at initiatives,” stated Salazar, who reckons Muga may ultimately produce 1mn tonnes a yr of potash, equal to a 3rd of the amount Europe presently imports from Russia and Belarus.
The struggle in Ukraine has underlined the significance of self sufficiency for Brazil, the world’s largest purchaser of fertilisers which depends on imports for about 85 per cent of its wants.
Verde Agritech, a Toronto-listed Brazilian maker of potassium-based fertiliser, has introduced it is going to enhance manufacturing. Brazil’s president Jair Bolsonaro, in the meantime, has pushed for indigenous territories within the Amazon rainforest to be opened up for potash mining — to the consternation of environmentalists.
Knight stated the present disaster made it simpler to know why BHP was bullish about Jansen, which may ultimately produce 16mn-17mn tonnes of potash a yr throughout all 4 phases of improvement.
“However there are many dangers across the market outlook . . . the principal one being that Russian and Belarus are unlikely to be out of the market without end.” he stated. “That is one factor that would change in a short time.”
Nevertheless, will probably be troublesome to switch Russian and Belarusian provide within the short-term, notably given many of the world’s enticing potash deposits have been already developed in the course of the China-driven commodities growth of the early 2000s.
“Provide will reply to excessive costs. It occurred within the supercycle and that’s why the market was depressed for such a very long time,” stated BHP chief economist Huw McKay. “But when demand grows the hangover ultimately passes. That’s the place we at the moment are — at the beginning of a brand new cycle however with out many enticing choices within the trade’s collective hopper.”
