TORONTO (miningweekly.com) – As the supply-demand equation for potash continues to tighten, prices will continue to climb, analysts said on Tuesday, with one predicting they may even top $650/t by the end of next year.
“The average spot price of potash should climb to at least $650/t by late 2012 – perhaps higher,” Scotiabank economics VP and commodity markets specialist Patricia Mohr told Mining Weekly Online.
The price for the crop nutrient averaged $490 free-on-board at the Port of Vancouver in July and August, while Canadian potash marketing cartel Canpotex signed longer-term supply deals with India and China to supply them at prices as high as $530/t for some volumes.
Canpotex said earlier this year it had committed all of its volumes for the third quarter of this year and a large portion for the last quarter, as surging grain prices and demand incentivised farmers to apply more fertilisers.
“In the short term, you should expect prices to continue going up,” Northern Securities analyst Fadi Benjamin said in an interview.
While he said spot potash prices reaching $600/t at the Port of Vancouver would “definitely be a stretch”, they could “easily” add a further $50/t to current levels during 2012.
Toronto-listed Karnalyte Resources CEO Robin Phinney had a similar view.
“My guess is they’re probably going to stabilise in $550/t range over next year or two,” he said in a telephone interview, predicting that the world would have a potash supply shortage for the next 15 years.
Karnalyte aims to build a 500 000-t/y carnallite potash mine by the end of 2013 at its Wynyard project.
Benjamin noted that the market was different to 2008, when speculating distributors and dealers pushed the price of the fertiliser to nearly $1 000/t, and saw it promptly collapse during the recession.
“Everybody has learned their lesson, and they’re not going to drive it up again,” he said, comparing the 2008 price spike to the mania that drove the uranium spot price north of $135/lb in 2007, before it fell back to around $30/lb.
Mohr said prices that would cause demand destruction were still distant this time around.
“Prices are currently well below levels that would curb demand given high grain and oilseed prices,” she commented in an email.
Wet conditions in the US and Canada’s 2011 spring planting season delayed sowing, and a persistent drought in Texas has also held farm production down, keeping food prices high.
Benjamin agreed that current potash prices were not high enough to deter farmers in the high grain price environment, pointing out that potash applications only accounted for around 7% of total crop input costs.
INDIA ON THE PROWL?
Indian media reported earlier this month that the government and private companies were looking to secure their own potash supplies, after bumping heads with Canpotex over pricing this year.
The Financial Express said on August 23 that the government would establish an investment fund to buy fertiliser companies abroad, potash miners in particular, in order to reduce the country’s dependence on imports, citing unnamed sources.
Benjamin said it was possible that Indian companies moved in on the potash sector, but that Chinese State-owned firms would be more likely buyers.
“It’s no secret that the Chinese have been trying to kick the tyres in Canada,” he said.
The last major acquisition in the Canadian potash sector was when Germany’s K+S bought Potash One for $428-million earlier this year.
Since then, Chinese firm Evergreen Industries bought an 80% stake in TSX-listed MagIndustries, which owns a project in the Republic of Congo.
Mohr said there had likely been a lack of corporate activity since, owing to the fact that it is a relatively concentrated industry, with not that many potential targets.
According to Phinney, there is an “excellent opportunity” for companies from India and China to partner with Canadian juniors such as his to secure offtake.
He said Karnalyte had received “quite a bit of offshore interest” in its project, declining to provide further details.
Shares in Karnalyte have climbed 76% on the TSX since it listed in December, to close at C$13.75 apiece on Tuesday.
Western Potash, another Canadian junior, has added around 37% over the same period, while the world’s biggest fertiliser company, Potash Corp has gained around 24% since mid-December.