Potash: growth market in a changing economy – by Emma Rowley (The Telegraph – August 17, 2013)

http://www.telegraph.co.uk/ 

Investors are betting big on fertiliser amid soaring global demand for crops.

Nearly half a kilometre under a nondescript industrial site in the Russian region of Perm, machines are gobbling up rock. Boring through the Earth’s crust, their teeth leave great whorls scraped on the freshly-dug walls, striated pink and white.

Throughout the vast web of tunnels that expands day by day, conveyor belts carry tonnes of ore to a cathedral-sized underground warehouse before the rock is taken to the surface.

These underground stores represent the fruits of an industry many believe could be of huge importance to the world economy in years to come. The piled pyramids are rich in potassium salts and, through simple processing, will be used as the fertiliser potash, the name given to these salts.

The company behind the mine, Uralkali, is far from a household name. Yet, last year it was the world’s biggest potash producer, with 9.1m tonnes. 

That was not enough for management, who have been busy showing off the expansion of the existing mines and shafts. Ultimately, the company aims to take its production capacity from the expected 13m tonnes this year to 19m tonnes by 2021.

 

It is not alone. BHP Billiton, the world’s biggest miner, has been talking up its ambitions in this arena, joining companies trying to woo investors as the commodity price boom wanes.

The FTSE 100 giant has been here before, with a $40bn (£26bn) hostile bid for Canada’s PotashCorp in 2010. That attempt failed, but signalled the seriousness of its ambitions and the potential potash offered. Undeterred, BHP has continued with its Jansen project in Western Canada, the cost of which has been put at $14bn and which would be the world’s largest potash mine whenever it opens.

Closer to home is Sirius Minerals, a much smaller Aim-listed company with a big ambition: to mine for a form of potash in England – to be precise, in the North York Moors National Park. The plan has, unsurprisingly, faced hurdles.

Despite the obvious differences in scale, what all three companies share is a belief that potash is among the handful of commodities which will play a much greater role in the global economy as time goes on.

Simply, it is a gamble on the world’s growing population, which is projected to rise by 0.9pc a year until 2030. That will be 71m new mouths to feed each year, according to Goldman Sachs analysts.

Importantly, much of this population growth will be concentrated in places where arable land is already in short supply, while the growing role of biofuels represents still more competition for this acreage.

“In Asia, the upper limit of available land has been reached in several countries,” a study from the UN’s Food and Agriculture Organisation (FAO) notes. “In Latin America, the increase in arable land is achieved only at a high ecological cost [especially deforestation] which may have direct relevance to climate change.”

At the same time, the swelling ranks of the global middle class are expected to want a diet richer in meat, which will have to be supported by more crops per head, as well as more fruit and vegetables, requiring more nutrients to produce than a simple rice-based diet.

For the rest of this article, click here: http://www.telegraph.co.uk/finance/commodities/10249590/Potash-growth-market-in-a-changing-economy.html

 

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