In over-built potash sector, tiny segment commands premium

Belgravia Hartford Capital

04/03/2015 17:07

By Rod Nickel 
    TORONTO, March 4 (Reuters) - Excess production capacity 
over-hangs the price of potash, but its premium form may offer 
upside that investors have yet to cash in on. 
    Sulfate of potash (SOP) is a chloride-free fertilizer suited 
to sensitive crops such as fruits and nuts. Standard SOP traded 
over five years to mid-2013 in northwestern Europe for 20 
percent more than granular muriate of potash (MOP), but that 
premium averaged 50 percent in 2014 as supplies became short and 
MOP prices fell, said Paul Burnside, manager of fertilizer 
analysis at consultancy CRU. 
    "Demand has proved to be very sticky and consumers have 
accepted that SOP prices aren't going to fall," Burnside said.  
    Global SOP production is 5 million tonnes annually, but 
demand may be 10-12 million, according to Potash Ridge Corp 
 PRK.TO , a company developing a 645,000-ton Utah mine. 
    "You can take all the SOP projects on the drawing board and 
it won't make a dent in that demand-supply deficit," said Chief 
Executive Guy Bentinck during the Prospectors & Developers 
Association of Canada convention. 
    Norwegian nitrogen producer Yara International  YAR.OL  owns 
a 17 percent stake in IC Potash  ICP.TO , which plans a $1 
billion SOP mine in New Mexico.  
    "We see strong growth for SOP and an underlying weakness in 
supply," said Yara's Bernhard Mauritz Stormyr.  
    Yara and Allana Potash  AAA.TO  are also gearing up their 
own potential SOP production.  ID:nL1N0VC1XA   
    Major producers include Compass Minerals International 
 CMP.N , which produces SOP from salt water ponds in Utah and 
Belgium's Tessenderlo Chemie NV  TESB.BR , which combines 
sulfuric acid with MOP to make SOP. 
    New production could force out higher-cost supplies and, if 
the premium falls enough, expand demand as consumers switch to 
SOP from MOP, Burnside said. 
    Investors aren't excited about SOP yet. 
    Shares of IC Potash and Potash Ridge have plunged 28 percent 
and 68 percent since mid-2014. Potash Ridge cut jobs and 
management salaries.  
    "Juniors have not received much attention from investors 
given general market apathy, particularly for those with capex 
in the billion-plus range," said analyst Spencer Churchill of 
Paradigm Capital. 
    Compass is expanding production to match U.S. demand, but 
further volumes could dramatically change market dynamics, said 
Keith Espelien, senior vice-president of plant nutrition.  
    The biggest fertilizer company, Potash Corp, isn't convinced 
about SOP. 
    "Right now the premium is there," said Chief Executive 
Jochen Tilk in late January. "Will it be there down the road? We 
really don't know." 
 
 ((rod.nickel@thomsonreuters.com; 1 204 230 6043; Reuters 
Messaging: rod.nickel.thomsonreuters.com@reuters.net; Twitter: 
@ReutersWinnipeg)) 
 
Keywords: MINING PDAC/POTASH