January 18, 2012

 

 

The global potash industry faces "an era of heightened volatility" as increasing demand for the fertiliser meets an "explosion" in in-mine expansion by historic producers, and new players such as BHP Billiton.

 

Analysts at DBRS, the ratings agency, said the jump and slump in nutrient group profitability evident in the run up to the fertiliser price peak in 2008, and subsequent collapse, could set a trend, as the sector deals with changing dynamics.

 

While potash consumption looks set to continue a trend of growing by a little under 3% a year, as farmers seek to improve yields to cash in on elevated crop prices, "the supply side of the situation is more complex.

 

"The key issue is this - how will the expected persistent demand growth for potash be balanced with potentially large supply additions, in what has been to date, a market dominated by a small number of players.

 

"The landscape could change significantly over the next few years."

 

It is not just existing potash giants such as Canada's PotashCorp and Russia's Uralkali, both of which announced plans to near-double capacity, Germany's K+S and US-based Mosaic which are planning extra supplies of the nutrient.

 

There are expected to be a "significant" number of new entrants into the sector, including Russia's Eurochem, Brazil-based Vale and Anglo-Australian mining giant BHP Billiton, which is believed to be skeptical of the industry's practice of exporting through cartels.

 

Some of the new players "bring deep pockets and potentially different marketing and market development philosophies than existing producers", DBRS said.

 

Matching the extra supplies, and fresh approaches, to demand could be the source of "swings in industry profitability over the next several years".

 

"It will take appropriate timing, market discipline and perhaps a bit of luck to keep markets in balance," the agency said.

 

Too little new capacity coming onstream "could lead to a spike in potash prices", while too much, coupled with "a lack of producer discipline, could drive potash prices much lower than current levels".

 

DBRS concluded that it "expects an era of heightened volatility in the potash industry".