Potash Fundamentals

Potash is the common term for a group of potassium containing salts, the most common of which is potassium chloride (KCI). Potassium is one of the three elements required by all plant life to grow, the other elements being nitrogen and phosphorus (or phosphate in its natural form). Potash occurs in large rock deposits in a limited number of areas of the world, most commonly as sylvite and sylvinite, but also as polyhalite, carnallite, kainite, langbenite and alunite. The application of potash improves the take-up by plants of nitrogen and phosphorus and reduces water loss, slows crop diseases, assists photosynthesis and increases drought resistance, yields, and shelf life.

The International Fertilizer Association estimates that demand for potash will continue to grow at 3.5% per annum based upon current consumption patterns. This equates to approximately 2 million new tonnes of KCl product every year – the equivalent of one new mine being commissioned every year. Potash is one of the few global commodities for which there is virtually no elasticity of demand. This is evidenced by the extent to which recently increased demand has quickly translated into extreme price fluctuations. The primary reason that potash demand is price inelastic is the status of potash as a vital component in chemical fertilisers without any substitute. This fact, in conjunction with a number of global macro trends, indicates strong long-term fundamentals for the potash market.

The Worlds Growing Dependance on Potash

The world's potash requirements have never been greater and show no signs of slowing in the future. High global population growth, urbanisation, changes in diet and the ever decreasing supply of arable land places ever greater pressure on farmers to increase crop yields. In addition, crops in parts of the world are suffering from years of under-application of potash and the over-use of nitrogen as a lower cost, but non-sustainable substitute. There is no commercial potassium substitute for potash.

                                Figure 1: Population change

Global supply and demand dynamics continue to drive the need for more abundant, sustainable and higher quality food sources such as fruit and vegetables and protein. The United Nations estimates that each year the world population grows by 70-75 million people which will result in over one billion extra mouths to feed by 2030. Inside this population boom is a growing middle class in countries such as India, China and other developing nations moving to higher protein diets and demanding more fruit and vegetables. This rising demand, along with the decrease of arable land on a per capita basis, the emergence of potash hungry biofuel crops and historical nutrient depletion have caused the potash industry to struggle to keep pace with demand.

                                                                          Figure 2: The Pressures on Supply

NPK Fertilisers vs Organic

Potash is valued primarily for its properties as a vital component of mineral fertilisers. Potassium (K) is one of three vital nutrients for plant growth, and is combined with Nitrogen (N) and Phosphorous (P) in so-called N-P-K fertilisers. N-P-K fertilisers are vital to the world's food supply, and are responsible for 40% to 60% of the world's current food supply. Current production vastly outstrips that attainable by organic methods. Simply put, without chemical fertilisers over 50% of today's population would be without food. This is not to say that agricultural production is currently sufficient – the Millennium Project's 2008 State of the Future report indicates that global food production must increase 50% by 2013, and thereafter double over the next 30 years, in order to solve current food crises.

Biofuels

The importance of fertiliser application in greatly enhancing agricultural productivity has recently been accentuated by a new focus on the cultivation of biofuel crops. This environmental and technological innovation represents a potential solution to fossil fuel emissions, but has diverted much agricultural production away from food as farmers are induced to produce fuel inputs. This is placing additional strain on a global food supply already struggling to feed the world's nearly 6.7 billion inhabitants.

Major Potash Markets

The largest markets for potash are China (20%), Brazil (16%), the USA (15%) and India (14%) with the largest consumption by crop being fruit and vegetables, corn, rice, sugar crops, soybeans and wheat, in that order. A commonly held belief is that Potash is only used for row crops although, as the chart below demonstrates, Potash is used/ necessary on most if not all types of crops.

                                                                       Figure 3: Potash Usage

China

China is a key driver of the potash market producing only 20% of its own potash requirement. With diet changing to more meat, fruit and vegetables plus massive urbanisation, a decreasing amount of arable land and historical under-application, China already accounts for 20% of global demand. Meat consumption has increased seven-fold in 30 years and continues apace and while population growth is relatively modest the steady rapid growth in GDP per capita leads to ever increasing demands for better quality food.

India

India has similar characteristics to China, but has a much more rapid rate of population growth and worse soil conditions. India's population has increased by 500 million people in the last 30 years putting huge pressure on its resources and is still increasing at 1.3% per year. India is the world's second largest producer of sugar, rice, wheat, fruit and vegetables with the majority consumed domestically. Currently India is the world's largest phosphate importer and has almost no domestic potash production. Potash imports have tripled in the last 20 years and the Government heavily subsidises fertiliser usage to improve yields. China and India's collective demand grew 8% per annum between 1993 and 2008, which is twice that of the rest of the world.

Brazil

Brazil is by far the biggest user of potash in Latin America as its soil is potassium deficient. This makes it the world's third largest consumer of potash. Brazil has to import 90% of its requirements for the production of sugar cane, soybean, rice and corn. It also produces 27% of the world's meat exports putting more strain on crops destined for livestock.

Asia (excluding China and India)

There has been significant economic growth in other Asian countries over the past decade leading to increased demand for more western style diets similar to what is being seen in China. Resulting in the need for higher yielding crops to meet that demand. Asia is a world-leading producer in rice, rubber and palm oil, but has limited land per capita. There has been a 40% increase of fertiliser application in the region over the last two decades.

North America

North America is an agricultural powerhouse producing approximately 40% of the world's corn, soybeans wheat and cotton. Biofuels crops, such as corn, now compete for land and boost the requirements for significantly higher yields.

Europe

Although Europe is a significant consumer of potash, overall growth is subdued. Eastern Europe is less intensively cultivated than Western Europe and Russia and Ukraine represent over 40% of the total agricultural land while consuming only 18% of the total. As the continent's largest producers of fruit and vegetables, Spain and Italy are large users of SOP with 33% of total potash consumption in these countries being in the form of SOP compared with the global average of 10%.

The different forms of Potash

A common misconception of the Potash industry is that all Potash is Muritate of Potash (MOP) but in fact there are two other kinds usually designated as "specialised" fertilisers for when MOP is not suitable. Many factors contribute to this but the two most prevalent are cost of production and scarcity.

Muriate of Potash (MOP)

The most common form of potash is potassium chloride, or Muriate of Potash (MOP) which occurs naturally as sylvite, sylvinite and carnallite. In 2010 it accounted for some 90% of the world's supply of over 52 million tonnes and contains around 60 – 62% of potassium oxide (K₂O). It is widely applied in all types of farming and is primarily used for row crops. However, the chloride ion in MOP can be detrimental to some plants, especially many fruits and vegetables, and it also inhibits plant growth in dry soils and saline areas. The soil's chloride content has to be managed carefully by farmers as it can build up and cause low quality crops.

Sulphate of Potash (SOP)

SOP production in 2010 was approximately 5 to 6 million tonnes and accounts for some 10% of the world's supply of potash. SOP has historically attracted a premium to the MOP price due to its limited availability and its historically higher production cost with some 60% of SOP being produced from the reaction of sulphuric acid and MOP in the Mannheim Furnace process. SOP contains 50 – 53% K₂O and can be used in every application that MOP can and is preferred in many circumstances such as in arid, saline and heavily cultivated soils and for the growth of potatoes, beans, fruits, vegetables, nuts, tobacco and other crops.

                                Figure 4: The Different Potash Types

The current SOP Supply Structure

SOP production currently is multi-faceted, with several different production methods being utilised by a handful of large producers and numerous small ones. The large producers genrally use their own resources such as MOP for upgrading to SOP, but the smaller scale have to buy their MOP and other elements on the open market thus are very much at the mercy of market forces. Upgrading is dominated by using MOP and Sulphuric Acid, usually in the Mannheim Kiln process, or through the adding of sulphates. Another method is the dissolving of brines although this is much less common.

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• MOP + Suphuric Acid react at high tempuratures (600^o C) with the SOP being produced along with hydrochloric acid in which causes another costly issue for the producer.
• MOP + Sulphate Salts react to create a combined salt that in turn can be reduced to SOP. Sulphate salts can range from sodium sulphate to magnesium sulphate.
• Natural Brines  require brines with high sulphate levels in which go through a leaching process and then on solar evaporation ponds. Although solar ponds facilitate the use of "free energy", the levels of SOP being produced are generally much lower.

                            Figure 5: SOP Production Process and Cost

SOP Historic Premium

The added production cost and relative scarcity of SOP supply has led SOP to be viewed by the industry as a "specialised" fertiliser in which would only be used when MOP was inappropriate. This also entitles SOP to a price premium over MOP historically.