Long term projections for Potash demand are stable and likely to moderately increase year-over-year. The quantity of high-quality arable land is decreasing. Human population is expected to increase by 3 Billion people in the next 37 years. There are no precise substitutes for potash. It is proven to considerably increase yield quantity and quality on almost all crops. The cumulative effects of the above factors will drive demand.
1. Potash
Market
Snapshot
January
2012
Long
term
projections
for
Potash
demand
are
stable
and
likely
to
moderately
increase
year-‐over-‐year.
The
quantity
of
high-‐quality
arable
land
is
decreasing.
Human
population
is
expected
to
increase
by
3
Billion
people
in
the
next
37
years.
There
are
no
precise
substitutes
for
potash.
It
is
proven
to
considerably
increase
yield
quantity
and
quality
on
almost
all
crops.
The
cumulative
effects
of
the
above
factors
will
drive
demand.
A
shift
in
the
market
structure
of
potash
supply
and
demand
is
slowly
unfolding
between
net
importers
and
suppliers.
Suppliers
have
been
able
to
control
the
price
mostly
by
shutting
down
or
slowing
production
to
match
demand.
Three
North
American
producers
currently
produce
about
66%
of
the
world’s
supply1.
These
three
producers
formed
export
entity
Canpotex
which
increases
their
pricing
power
and
collective
market
influence2.
Combining
Belarusian
Potash
Company’s
market
share
with
Canpotex
market
share
accounts
for
nearly
75%
of
the
total
potash
market3.
In
2010
BHP
Bilton
attempted
a
hostile
take-‐over
of
Potash
Corp.
The
take-‐over
was
denied
by
the
Canadian
government
on
grounds
of
concern
that
BHP
openly
wished
to
dissolve
Canpotex
(Potash
Corp
is
a
majority
player).
If
BHP
dissolved
Canpotex,
the
likelihood
of
a
substantial
decrease
in
tax
revenue
due
to
more
competitive
market
pricing
since
the
three
major
Canadian
producers
wouldn’t
be
exporting
in
conjunction
with
each
other,
was
grounds
for
the
government
to
deny
the
take-‐over4.
On
the
other
side
of
the
market
shift
are
sovereigns
such
as
China
and
India
when
combined
boast
approximately
a
third
of
the
world’s
population
and
require
substantial
quantities
of
Potash
to
boost
crop
yield
to
sustain
rapidly
growing
populations
and
the
increasingly
agriculturally
intensive
appetite
of
the
middle
class.
Keys
to
long
term
demand
stability:
-‐
Population
growth
-‐
Economic
growth
(Rising
numbers
of
the
middle
class
and
subsequent
dietary
shifts
mean
a
heavier
emphasis
in
refined
sugars
and
large
animal
protein
requires
increasing
yields
and
thereby
increases
potash
demand.)
-‐
Decreasing
arable
land
-‐
Decreasing
water
supply
reliability
-‐
Crops
used
in
food,
animal
feed,
&
bio-‐fuel
Threats
to
demand
stability:
-‐
Weather
Disasters
(drought,
flood,
hurricane,
fire)
that
ruin
entire
region’s
crops
&
potentially
in
turn,
note-‐
ably
decrease
potash
demand
for
the
short-‐term
-‐
Unforeseen
sizeable
reduction
in
world
population
-‐
Economic
downturns
1
Wall
Street
Journal.
“Potash
Miners
Settle
Pricing
Suits”
Thursday,
January
31,
2013
by
Alistair
MacDonald.
2
http://www.theglobeandmail.com/report-‐on-‐business/international-‐business/asian-‐pacific-‐business/india-‐has-‐enough-‐potash-‐to-‐
keep-‐canpotex-‐waiting/article7492928/?cmpid=rss1
3
http://thebusinessofmining.com/tag/canpotex/
4
http://www.thestreet.com/story/10879096/1/report-‐says-‐bhp-‐bid-‐would-‐cut-‐government-‐revenue.html
2. A
set
of
‘mega-‐forces’,
as
described
by
KPMG,
including
population
growth,
economic
growth
creating
higher
incomes
leading
to
changing
dietary
habits,
ecosystem
decline,
water
scarcity
and
global
weather
weird-‐ing
patterns
are
all
substantial
variables,
functioning
in
conjunction
to
affect
potash
demand.5
Individually
these
forces
are
possible
to
predict
with
some
level
of
confidence,
but
predictability
is
problematic
when
considering
the
potential
cumulative
effects
of
their
interaction.6
Even
with
the
variability
in
these
events,
projections
are
for
demand
to
increase
at
a
rate
of
about
3%
per
annum
(as
an
extrapolation
of
demand
growth
over
the
last
decade.).7
China
will
likely
have
a
higher
demand
growth
rate
than
the
global
average.
Given
that
India
imports
100%
of
its
potash
needs
and
China
will
be
importing
around
80%,
they
are
heavily
reliant
on
suppliers8.
Since
the
suppliers
have
shown
they
are
willing
to
charge
premium
prices,
companies
and
the
governments
in
China
and
India
are
looking
into
other
methods
to
assure
potash
supply
including
funding
junior
miners.
At
the
end
of
2012,
one
of
India’s
major
chemical/fertilizer
companies
purchased
a
20%
stake
in
a
junior
mining
company
based
out
of
Alberta,
Canada
guaranteeing
it
will
purchase
potash
from
the
company
for
the
next
20
years
at
or
near
market
prices.9
This
is
one
method
that
individual
companies
on
the
demand
side
may
take
to
assure
a
secure,
continuous,
affordable
supply
of
potash.
Others
are
likely
to
use
this
approach
as
well.
If
enough
demand
is
met
through
these
smaller
suppliers,
it
will
slowly
shift
the
market
dynamic,
and
level
out
the
pricing
power
that
current
producers
enjoy.
There’s
also
the
potential
private
funding
may
finance
smaller
mining
operations
if
economical.
There
are
substantial
barriers
to
entry
in
this
industry,
including
capital
necessary
to
finance
mine
development,
time
required
to
get
a
mine
up
and
running,
infrastructure
investments
needed
in
many
locations,
regulatory
environmental
impact
studies
and
permitting.
These
provide
enough
of
a
barrier
that
the
main
producers
have
a
moat
of
safety
in
terms
of
how
quickly
production
may
be
ramped
up,
and
they
have
enough
established
potash
fields
that
they
can
increase
production
as
needed
to
make
production
less
economical
for
others.
Further
cushioning
this
margin
are
low
cost
mines
that
can
be
put
into
production
to
drop
the
market
price
enough
that
it
is
un-‐economic
to
invest
in
a
new
mine.
As
key-‐importers
reduce
reliance
on
the
major
potash
producers,
the
current
market
structure
will
come
under
increasing
pressure.
Oversupply
of
potash
is
projected
through
202010.
Given
the
variables
in
the
market,
demand
overall
will
continue
to
increase,
and
the
outlook
is
favorable.
With
recent
market
pull
backs,
this
is
likely
a
timely
entry
point
for
a
long-‐term
potash
investment
as
potash
is
a
robust
investment
over
the
long
run.
Volatility
is
to
be
expected
as
suppliers
&
importers
hash
out
the
longer-‐term
market
dynamics,
and
as
the
variable
‘mega-‐forces’
contribute
to
swings
in
supply
and
demand.
Contact:
A.
Rider
WealthMark
LLC.
1329
N.
State
Street,
Suite
206
Bellingham,
WA
98225
5
https://www.rabobank.com/en/research/FAR/recent_publication_1.html
6
Ibid
7
Ibid
8
http://potashinvestingnews.com/6930-‐potash-‐supply-‐contracts-‐india-‐china-‐canpotex-‐sinofert-‐vale-‐demand-‐price.html
9
http://www.theglobeandmail.com/globe-‐investor/karnalyte-‐signs-‐potash-‐deal-‐with-‐indias-‐gsfc/article7174175/
10
https://www.rabobank.com/en/research/FAR/recent_publication_1.html
