Potash mining is a serious business, according to PotashCorp, which in its annual report states that good potash deposits "are rare". Not only that, but barriers to entry are seen as high, given that greenfield development is costly (about C$2.5bn for a 2m ton a year mine in Saskatchewan, excluding infrastructure) and has a long lead time (five to seven years before production starts up). Potash, or carbonate of potash, is an impure form of potassium carbonate (K2CO3), mined from deposits left behind by evaporated prehistoric seas.
Potash has a big future, according to PotashCorp:
• There are few global producers. Only 12 countries produce potash, while about 160 consume it.
• Government ownership is low: less government ownership means decisions are primarily market-driven, rather than politically motivated.
• Demand growth is great: historical under-application of fertilizers is most pronounced in potash, but farmers have started working on the issue.
• Supply is constrained: even with all producer expansions considered, tight supply is anticipated for at least the next five years.
• Earnings quality is high: among PotashCorp's nutrient segments, potash is the most stable and provides the highest gross margin per dollar of sales.
Spot prices are currently on the move. The Belarusian Potash Company (BPC) which represents Belaruskali and Uralkali, recently announced third quarter 2008 potash pricing for the Southeast Asian and Brazilian spot markets at $1,000 a ton for standard grade potash delivered to Southeast Asia, effective July 1.
Canpotex (which represents PotashCorp, Mosaic (MOS US, USD 126.99) and Agrium (AGU US, USD 86.52) previously announced that standard grade potash prices in Southeast Asia would increase from $525 to $725 a ton, while granular potash prices for Brazil would move from $405 to $750 a ton, effective on June 1. "Given current robust potash market conditions", say analysts at RBC Capital Markets, "we would not be surprised to see Canpotex match BPC's new spot potash pricing" of $1,000 a ton for the third quarter of this year.
