What is Potash Investing?

What investors need to know about potash investing.

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The world population is increasing rapidly, and is expected to reach over 9 billion by 2050.

With that in mind, the world will need to produce more food to keep up with the growing number of mouths. Naturally, the increase in people also means further urbanization and less farmland to work with. This means that farmers must increase crop yields.

This is where fertilizers like potash come in. They not only provide essential nutrients to the food being grown, they provide higher output from farms as potassium improves water retention in plants and strengthens their roots and stems.

So, what is potash investing?

An overview of potash

First, we should look at what the fertilizer is: it is an alkaline potassium compound that is most commonly used in fertilizers, with 95 percent of the world’s supply being use to grow food.

Historically, the term “potash” came from the practice of extracting potassium carbonate (K2CO3) by leaching wood ashes and evaporating the solution in large iron pots. Today, it refers to potassium compounds and potassium-bearing materials. This includes potassium chloride (KCI), which is a salt-like mineral that is naturally white or colorless, but sometimes takes on a pink or red color due to impurities such as clay.

As it stands now, most potash comes from salts left over from ancient evaporated seas, which lies underground.

However, it’s important to keep in mind there are two different types of potash: sulfate of potash (SOP) and muriate of potash (MOP).

SOP is most commonly used in high-value crops, such as fruits, vegetables, nuts, tea, coffee and tobacco, and is considered premium-quality. MOP is the most commonly used, typically for vegetables such as sugar beets, celery and Swiss chard.

Supply/demand

According to the US Geological Survey (USGS), the global potash production capacity is expected to reach 61 million tonnes by 2018, a large increase from the 55 million tonnes produced in 2014.

Last year, the top potash-producing country was Canada at 11 million tonnes–an increase from the year before. Saskatchewan is responsible for producing 90 percent of that total and accounts for about 50 percent of the world’s supply.

Canada was followed by Russia, who produced 7.4 million tonnes, followed Belarus, with an output of 6.4 million tonnes. As it stands, there are only 12 leading countries currently producing potash.

Late in 2015, the leading potash producer announced that it would stop production of MOP and only recover SOP at one of its three mines in New Mexico.

Things are looking up, however; the USGS sees global potash production capacity moving up to 61 MT by 2019–a significant increase from 2015’s production of 52 MT. In the same vein, demand for the fertilizer is expected to increase, and world consumption is also expected to grow to 39.5 MT over the next three years–an increase from 2015’s world consumption of 36 MT.

Why potash investing?

As mentioned, the need for fertilizers is expected to increase with the population and the three largest importers of potash: China, India and Brazil will likely increase their demand.

While the current supply and demand imbalance has led to lower potash prices, the increase in demand from certain regions in coming years will likely restore that balance.

According to The Food and Agricultural Organization of the United Nations, overall demand for agricultural products is expected to grow at a rate of 1.1 percent per year to 2050. Although the numbers are going up, it’s actually a drop from the average 2.2 percent per year in the last four decades.

The main drivers for these expected changes includes population growth, increases in per capita consumption and changes in diets leading to the consumption of more livestock products.

When it comes to developing countries, the report shows that roughly 80 percent of the projected growth in crop production in these regions would come from intensification in the form of yield increases and higher crop intensities.

In other words–the future of the potash market is looking positive.

Companies to watch

With the global production of potash expected to grow, here’s a quick look at a few companies in the sector making recent strides.

  • Potash Corp (TSX:POT): PotashCorp is the world’s largest fertilizer company in terms of capacity, and announced in September that it had merged with Agrium (NYSE:AGU) to create an integrated global supplier of crop inputs. According to the agreement, a new company will be formed, which will own both companies, and is expected to close in mid-2017.
  • Potash Ridge (TSX:PRK): Potash Ridge is a near-term producer of fertilizer with development assets in Utah and Quebec. The company notes it has an opportunity to develop a mine and processing facility to produce SOP . In October, Potash Ridge announced it had signed an offtake and funding agreement with Jones-Hamilton, a chemicals company and producer of hydrochloric acid.
  • Gensource Potash (TSXV:GSP): Gensource is focused on two projects in Saskatchewan, and announced in October that it had launched a feasibility study for its proposed Vanguard mine, work that is expected to be completed in the first quarter of 2017.

Don’t forget to follow us @INN_Resource for real-time news updates.

Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: Gensource Potash is a client of the Investing News Network. This article is not paid for content.

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