https://www.miningweekly.com

Fox-Davies unpacks the growing market dynamics for potash, phosphates

16th July 2021

By: Marleny Arnoldi

Deputy Editor Online

     

Font size: - +

The fertiliser industry is poised to benefit from increased consumption in coming years, with the global population being forecast to reach 9.7-billion in 2064, says advisory firm Fox-Davies Capital.

The firm’s market analysis suggests that both potash and phosphates are approaching production constraints, followed what had been a decade of overcapacity and poor utilisation in the fertiliser industry.

Potash demand has been growing globally at an average compound annual growth rate (CAGR) of 3.1% for the last six years.

Seaborne consumption of potash globally has been growing at a CAGR of about 2.4% over the last 26 years, implying the demand doubles roughly every 30 years.

The key consideration is that, although global potash resources are significant, their distribution is inequitable and, importantly, not yet developed in many countries where large national population and economic requirements underlie increasing demand.

Fox-Davies says decreasing arable land implies increasingly higher fertiliser consumption, while a global transition away from wheat and rice and towards more fruit and vegetables bodes well for fertiliser demand.

Between 30% and 50% of modern crop yields are reliant on either natural or synthetic fertilisers.

Unlike other commodities, Fox-Davies says the demand drivers for phosphate and potash are related to long-run improvements in human habitation and, as economies develop, hard commodity requirements lessen while consumption of proteins, fruit and vegetables increase.

To sustain this dietary transition, coupled with increasing global population numbers, the continued economic development in many jurisdictions is related to the unremitting growth and supply of fertilisers, the advisory states.

The firm believes fertilisers are an opportunity to invest in global growth and development without the risk of strong price fluctuations as seen in other commodities, which are more leveraged to the ongoing business cycle.

The largest markets for potash currently are China, comprising 20% of the market, Brazil at 16%, the US at 15% and India at 14%.

Fox-Davies says the potash market is best described as being relatively oligopolistic or collusive, with suppliers curtailing production when perceived demand has diminished.

With the price set by the larger manufacturers, smaller producers are typically price-takers.

Therefore, the oligopoly-controlled price market is arguably a positive attribute because it reduces market risks inherent in typical commodity investment through price volatility and product development.

The largest marketing collectives that supply potash are based in Canada and Russia. Fox-Davies explains that the top ten potash producers globally control 85% of global capacity.

In an industry dominated by high capital expenditure (capex) and deep resources, the advisory firm believes there is a unique opportunity for minor operators to develop smaller, relatively low capex projects to supply localised demand without inciting a market response from any of the major participants.

“We are confident that, in many cases, operating margins will likely outperform other commodities over the length of an economic cycle; the combination of consistent returns coupled with long-life assets are attracting the likes of major miners including BHP and Rio Tinto.

Fox-Davies further elaborates that the majority of potash supply is mined from underground ore deposits using conventional mining techniques, such as room and pillar, with the ore typically extracted through conveyor belt systems and shafts.

Once on surface, the ore is crushed and, using flotation, impurities such as salt and clay particles are gotten rid of.

Some operations, particularly deeper deposits in Saskatchewan, Canada, use solution mining techniques whereby warm water is injected into the ground to dissolve potash minerals, which are then extracted and pumped into evaporation ponds.

As the brine cools, salt and potash re-precipitate and settle at the bottom of these ponds. The precipitate is then dried and screened. This approach, however, is more energy-intensive, albeit with a lower capital cost.

Fox-Davies finds in its analysis of the fertiliser industry that the global potash market is relatively small at about 61-million tonnes of muriate of potash, with about 95% of supply being used in agriculture. The remaining 5% is consumed in industrial applications.

Only 12 countries produce potash, but it is consumed by more than 180 countries.

Although there are more than three-dozen proposed potash mines or capacity expansions that have been announced publicly, Fox-Davies notes that, for a variety of reasons, including a lack of finance or technical issues, these will not be developed in the near future.

To highlight how capital intensive a potash project typically is, the firm refers to BHP’s Jansen Stage 1 project, which had an expected capex cost of $5.7-billion to bring eight-million tonnes a year of production online. This is coupled with a seven-year timeframe between the start of construction and reaching nameplate production.

The figure does not include infrastructure outside the plant gates, such as rail or road networks, utility systems and port facilities.

Moreover, Fox-Davies’ analysis predicts that global consumption of potash doubles about every 23 years and growth in demand, at the moment, is being driven by Africa, as well as South and West Asia.

BHP has indicated its conviction that the potash market could double to about a $50-billion by the 2040s.

Looking at phosphate, more than three-quarters of known global reserves are located in North Africa.

Fox-Davies estimates that about 200-million tonnes of phosphate rock is extracted every year, with only 30-million tonnes being traded every year.

Europe, for one, is almost entirely dependent on imports of phosphate rock, with France, Germany, Italy, Spain and the UK accounting for more than three-quarters of phosphoric imports in the continent.

Historically, supplies have been through Tunisia, Jordan and Syria; however, with political instability rising in those areas, long-term supplies are no longer guaranteed.

Fox-Davies says phosphate, unlike potash, has a plethora of smaller producers, with the bulk of production being strongly influenced by localised consumption and supply factors.

In recent years, prices were adversely affected by increased productive investment out of China, which moved from being a net importer to a net exporter, as well as Morocco, Saudi Arabia and Russia.

These countries collectively account for 75% of global diammonium phosphate and monoammonium phosphate exports.

By contrast, Brazil, India and the US are the three largest net consuming markets, accounting for over 40% of phosphate demand.

At present, both Brazil and India are the two key markets for phosphate imports, setting prevailing prices, with contracts typically traded on a spot pricing basis, with phosphate rock and phosphoric acid sold on a longer-term contractual basis.

In conclusion, Fox-Davies says potash and phosphate markets remain under-priced on a long-term basis and warrant investor attention.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

Comments

The content you are trying to access is only available to subscribers.

If you are already a subscriber, you can Login Here.

If you are not a subscriber, you can subscribe now, by selecting one of the below options.

For more information or assistance, please contact us at subscriptions@creamermedia.co.za.

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION