Potash Outlook 2019: Steady Price Growth Expected

Agriculture Investing

The Investing News Network looks back at the potash sector during 2018, and explores the potash outlook for the year ahead.

In 2017, potash output was slightly lower in the US, but the shortfall was offset by increased production in Belarus, Canada and Russia, which helped boost the annual total to 42 million tonnes, up from 39.3 million tonnes in 2016.

Increased output in 2017 kept potash prices in check at around US$330 a tonne — a far cry from 2009, when the agricultural mineral was selling for almost US$900. That said, while prices avoided those highs, they also stayed away from the lows of 2005, when a tonne of potash sold for roughly US$150.

Potash prices continued to move higher in 2018, with output growth and higher demand pushing them up. By the end of the year, prices were about 20 percent higher compared to the same period in 2017.

Even so, future potash price growth remains uncertain as more potash projects are slated to open in the next two years, increasing global supply significantly.

Here, the Investing News Network looks at what catalysts occurred in the potash sector during 2018, and explores the potash outlook for the year ahead.

Potash trends 2018: Big projects on the go

2018 started with huge news for the agricultural sector: two of the Canada’s leading fertilizer companies,Potash Corporation of Saskatchewan and Agrium, merged to create the world’s largest fertilizer company, Nutrien(TSX:NTR,NYSE:NTR).

The deal gave Nutrien access to 10 potash mines in Saskatchewan, one of the most lucrative potash jurisdictions in the world. In 2017, Canadian potash accounted for 12 million MT of global supply.

Despite being poised for sector domination, a long and harsh winter in Canada kept the company from achieving its Q1 goals, and cost Canada’s third-largest resource company US$1 million in revenue.

“Nutrien’s first quarter was affected by a late start to the spring season across North America and west coast rail performance issues. However, we expect a strong second quarter with improved grower margins and strong demand and firm prices for most crop inputs,” Chuck Magro, Nutrien’s president and CEO, said at the time.

By August, the steadily climbing potash price was piquing international interest, and speculation abounded that BHP (ASX:BHP,NYSE:BHP,LSE:BLT) might begin the process of bringing its Saskatchewan-based Jansen project online.

However, by the end of the year BHP still had not commenced production at Jansen.

On the other side of the globe, Australian Potash (ASX:APC), a company focused on developing its sulfate of potash (SOP) project, also had a noteworthy year.

SOP is a premium potash product containing two key nutrients for growing crops: potassium and sulfur. Its counterpart muriate of potash (MOP) contains potassium chloride.

While Australian Potash had been more optimistic about the way 2018 was going to play out for the market, the company did hit major milestones.

CEO and Managing Director Matt Shackleton had expected “[a] significantly more buoyant equities market with increased volumes.” Overall he found lack of investor interest to be the most challenging aspect of the potash market for the year.

“In Australia, it is getting the investment market to understand that potash can be an investment theme, likegold,base metals andiron ore,” he said. “It is not necessarily an overseas thing.”

In late October, Australian Potash produced the first potash salts at its Lake Wells project in Western Australia. It was not only an achievement for the company, but also a major milestone for the country.

Reward Minerals (ASX:RWD), another Australia-based potash company, also achieved some benchmark moments.

“Undoubtedly the completion of the Lake Disappointment SOP project prefeasibility study in the first half of the year was the one highlight, the other being the recent delivery of our updated environmental impact assessment to the Western Australian EPA,” said Greg Cochrane, CEO of Reward Minerals.

“There is still quite a way to go for us with environmental permitting, but we are well positioned as we go into the new year.”

For Cochrane, 2018 played out much like he expected it to.

“The SOP market is about where we expected it to be, and the price has remained firm despite the threat of plenty of significant new supply,” he said. “In regard to the large SOP projects out there, however, supply is not guaranteed and is at best quite a few years away — maybe three years’ time.”

Concerns of a supply shortage were compounded in early November, whenNutrien announced it was permanently closing its potash plant in New Brunswick to focus entirely on its Saskatchewan projects.

Potash outlook 2019: Prices poised to grow

Potash prices will likely continue to be supported by strong demand and tight availability, which could spike spot market prices by an additional 20 to 30 percent.

Increased demand in China and India could drive the price even higher.

This positive outlook was pointed to by Reward Minerals’ Cochrane.

“Based on the most recent settlements the MOP market is looking quite positive, whilst I expect more of the same in the SOP market,” said Cochrane. “It will be interesting to see if any of the larger SOP projects start making tangible progress on the ground next year — by that I mean actually raising the required capital and commencing development.”

He advises potential investors to hold the course as payoffs are likely ahead.

“Firstly, be patient,” said Cochrane. “Potash projects generally take a long time to develop and therefore cannot match the short-term returns captured by small gold projects or the new-age minerals in the energy space (which also have their challenges). However, once a potash project is developed it should generate healthy returns over the longer term, almost like an annuity stream.”

Australian Potash’s Shackleton is less optimistic about the 2019 potash market.

“I would expect the potash market to weaken as the mothballed production capacity costs of capital needs are met and production is restarted,” said Shackleton. “Weaker prices, better volumes, bigger pie.”

However, he does believe it is a good time to invest in the Australian sector.

“Look at Australia — the equity valuation on the Australian developers is very cheap, and we are expert mine developers in the world’s most envious mining jurisdiction,” he noted.

In 2019, Australian Potash plans to advance its current project and fulfill its contracts.

Some of the new year goals for the potash company include,“conclusion of a definitive feasibility study, binding offtake agreements with our Chinese and Australian partners and production of the first-ever field-produced SOP from Australia,” added Shackleton.

For 2019, Reward Minerals also has its sights set on moving its project ahead quickly.

“We are looking forward to obtaining our environmental permits by the end of 2019 and an important resource update early in the new year. We also hope to have a strategic partner onboard by the end of next year,” said Cochrane.

“There may be a few other pleasant surprises in store for our shareholders in 2019, but I can’t comment on those currently.”

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

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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