Since Lithuanian ruling coalition increases price of the food, inflation, and crisis for everybody seeking political goals that most of the human population does not share:
"Potash, a potassium-based fertilizer mined from the ground, came into sharp focus last year when prices reached record highs following supply disruptions from Belarus and Russia. Some see it as a key commodity not just for agricultural production but also combating global warming.
Now potash producers elsewhere -- most notably in Canada -- are seeing an opportunity to grab market share. BHP, the world's largest miner, views the fertilizer as one of the keys to its future. Will their potash bets pay off?
Potash prices in Brazil, the world's largest importer of the fertilizer, spiked to a record high of $1,180 a ton in April 2022, 250% above the trailing-five-year average. That was quite the reversal for potash, which had been stuck in a rut for at least a decade because of a capacity glut.
The supply disruptions from Belarus and Russia, which together typically produce 40% of the world's potash, were to blame. Both the U.S. and the European Union started imposing sanctions on Belarus's state-run potash producer in 2021 following a disputed presidential election, and they tightened those restrictions in 2022 in response to Belarus's involvement in Ukraine events.
On top of that, Lithuania started banning the transport of Belarusian potash, eliminating a key export route.
Belarusian exports were down by about 70% last year, according to an estimate from analyst Allan Pickett of S&P Global Commodity Insights. And while there were no direct sanctions imposed on Russian potash, restrictions on export-enabling activities such as banking and shipping have affected supply.
Potash prices have moderated considerably since then, partly because some buyers stockpiled it last year when it wasn't clear how disrupted Russian potash supply would be, according to analyst Humphrey Knight at CRU Group. Still, prices today are about 28% above the 10-year average preceding conflict in Ukraine.
That's driving miners elsewhere to increase production, including in Canada, which typically accounts for about 30% of global potash production.
In a typical year, the world uses about 70 million tons of potash. Nutrien, the world's largest producer of potash, has said it plans to ramp up its operating production capacity in Saskatchewan to 18 million tons a year by 2026 from 15 million tons today. Mining giant BHP plans to spend $5.7 billion on its inaugural potash mine in Saskatchewan, which has an initial capacity target of 4.35 million tons a year and a startup date of 2026.
It is tough to predict how potash demand will actually play out this year. Crop prices are elevated, which should encourage farmers to maximize yield and drive up fertilizer demand.
Nutrien Chief Executive Ken Seitz said in an interview that farmers are likely putting off purchases until the last minute because they have seen prices softening.
Indeed, predicting potash demand in any given year is tricky. It tends to be more volatile than both nitrogen and phosphate-based fertilizers. Farmers can reduce potash usage without having an immediate impact on their crops.
While nitrogen has a visible effect on crop yield, potash affects plant quality and disease resistance. "Potash is more like insurance against drought, pests and diseases," said analyst Joel Jackson at BMO Capital Markets. Potash also doesn't leach out from soil as easily as nitrogen or phosphate-based fertilizers. But it has no substitutes and eventually needs to be replenished in crop soil.
Mining companies think potash will serve an important role in a more resource-constrained, climate-aware world. Mr. Seitz said the rate of arable-land expansion is declining even as the population is expected to grow at a healthy pace, which means farmers will have to make the most of the available farmland. This in turn means fertilizers will play an important role.
BHP sees potash as one of its "future-facing commodities," alongside copper and nickel, the latter two being crucial to electrification. Notably, nitrogen-based fertilizers use natural gas as a feedstock and when used in excess, can release nitrous oxide, a greenhouse gas. Excess use of both nitrogen and phosphorous-based fertilizers can cause them to be leached into water sources and cause environmental damage. Potash doesn't share some of those environmental impacts and it helps with water retention, a quality that will prove valuable if droughts become more common.
Demand for potash has historically grown 2% to 3% a year for a long time, below the rate of gross domestic product growth, Mr. Jackson says. That's despite the fact that arable land per person has declined almost every year since 1961, according to the World Bank.
BMO Capital Markets expects potash demand to grow to 76.7 million tons by 2026, a 5% increase over 2021 levels. At the same time, potash production capacity is expected to grow 18% to 95.1 million tons. Potash's profitability for miners like Nutrien, Mosaic and BHP will depend, in part, on how much supply can ultimately come from Belarus and Russia.
While exports from Belarus are restricted, the country is increasingly finding ways to get potash to the market through Russian ports or by rail to China, according to Mr. Knight.
In any case, since the two major Canadian producers -- Nutrien and Mosaic -- together account for about 30% of global potash production, they can reduce production when prices get too low. They have historically done this to keep the balance of supply and demand "relatively snug," according to a report from JPMorgan.
The climate- and population-related bull case for potash is still somewhat speculative. But the supply-related bull case is more convincing: Geopolitical disruptions in Belarus and Russia are very real and don't look likely to be resolved anytime soon.” [1]
1. EXCHANGE --- Heard on the Street: Fertile Ground for Fertilizer Miners --- Potash supply disruptions in Belarus and Russia have improved prospects for producers elsewhere
Lee, Jinjoo. Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 15 Apr 2023: B.12.
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