Ukraine war sparks potash rush as global food fears grow

For the better part of a decade, the potash market has struggled with excess production capacity and low prices. But as sanctions choke off fertilizer supplies from Russia and Belarus, which account for nearly 40 percent of global supplies, buyers are scrambling for shipments and warnings of a global food crisis are mounting.

In Brazil, the agricultural powerhouse, prices have risen 185 percent over the past year to record levels above $1,100 a ton, according to commodity consultancy CRU. In Europe, their prices rose by 240 percent to 875 euros per ton.

Extracted from underground sediments formed during the evaporation of ancient seabeds, potash is a mineral rich in water-soluble potassium, one of the three essential nutrients needed for crop growth. Crucial to the production of staples such as corn, soybeans, rice and wheat, a sudden drop in supply threatens to destroy global crop yields.

Producers are now looking to take advantage of the sharp rise in potash prices and geopolitical tensions that have upended traditional trade flows and highlighted the importance of security of supply.

BHP is considering whether to advance production from Jansen, a $5.7 billion potash project in the western Canadian province of Saskatchewan, to 2026 instead of 2027.

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The world’s largest mining company has also begun studies to expand the second phase of the project, which will double potash production to eight million tons annually.

“The tragic events of recent months have highlighted a higher-than-usual potential for supply-side disruption in this market,” BHP CEO Mike Henry told investors at a conference in Miami last month. “This has positively reinforced the decision we have made to go into potash.”

Supporters of a $2.5 billion deferred potash mine in the Amazon rainforest, which will be the largest in the region, have renewed pressure for a license. To obtain the necessary environmental licenses, the Brazilian Botas must consult the local indigenous people.

“Subject to securing the required funding, the company will then start building to perfection at the end of this year,” said Matt Simpson, CEO of the company, which is owned by Forbes Bank and the Toronto-based Manhattan Commercial Bank. “Assuming that construction begins at the end of this year, potash production can begin in three to four years.”

Meanwhile, smaller exploration companies are raising funds to start or complete new projects in politically stable jurisdictions.

Highfield Resources, a listed Australian company that plans to start developing a potash project in Spain this year, is close to securing a €312.5 million financing package from a consortium of European banks and has begun talks with potential partners.

“We have seen a huge difference in the level of interest since the war in Ukraine,” said CEO Ignacio Salazar.

On the other side of the Atlantic, Canada’s Western Potash has just secured a C$85 million loan from Appian Capital, a London-based private group, to fund the development of the Milestone project in Saskatchewan, while it owns shares in Aim-listed Emmerson, which owns and hops the venture. Khemisset in Morocco by 30% this year.

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“If you’re in exploration development right now, you’re spending every cent you can get going around Wall Street, Toronto and London, trying to talk to hedge funds, private equity and others, trying to raise money,” said Alan Beckett, head of fertilizer analysis at IHS. Market.

The current rise in potash prices is mainly caused by Belarus’ inability to find a way into international markets due to EU and US sanctions and after neighboring Lithuania blocked access to railways and ports.

Belarus currently sells about 5 percent of its regular volumes, mostly to China, although it will likely find a way to reach Russia’s Baltic ports, according to Beckett.

“There are countries that will not necessarily be concerned about buying from Belarus. At any point there [volume] “The market prices will bounce back, prices will fall and a lot of the heat will disappear,” he said.

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But while the potash market has had a history of boom and bust dating back to the 1960s, analysts and industry executives believe that even if prices calmed, they would still be above the long-term average.

At a recent conference, Germany’s K+S said a new floor price of $500 per ton was possible – half the current spot price but double the average price in the previous decade.

In a presentation published last year, BHP projected “future achievable” potash production at 86 million tons in 2030, up from 76 million tons in 2020. Now, however, analysts believe that estimate will be difficult to achieve because Most of the new supplies are expected to come from Russia and Belarus.

“If these projects are delayed or even canceled entirely due to access funding issues, you could possibly see a situation where the supply is more narrow for a longer period,” said Humphrey Knight, CRU’s head of potash analysis.

The Belarusian group Slavkaliy was forced to suspend the development of the 2 million tons per year Nezhinsky mine due to difficulties in obtaining a loan. Analysts say there are also question marks over the financing of Project Talitsky, a project being developed by Russia’s Akron Corporation.

Projects like Highfield’s Muga are relatively small in size so they aren’t big enough to make a global difference, although they could help balance regional supply and demand.

“Europe realizes it needs to be self-sufficient and has started looking at projects,” said Salazar, who believes Moga could eventually produce 1 million tons of potash per year, a third of Europe’s current imports from Russia and Belarus.

The war in Ukraine underscored the importance of self-sufficiency for Brazil, the world’s largest buyer of fertilizers, which relies on imports for about 85 percent of its needs.

Verde Agritech, a Brazilian manufacturer of potassium-based fertilizers, listed on the Toronto Stock Exchange, has announced that it will increase production. Meanwhile, Brazilian President Jair Bolsonaro has pushed for indigenous lands in the Amazon rainforest to be opened to potash mining – much to the consternation of environmentalists.

Knight said the current crisis has made it easier to understand why BHP is optimistic about Jansen, which could eventually produce 16 million to 17 million tons of potash annually across all four stages of development.

But there are a lot of risks around the market outlook. . . The key factor is that it is unlikely that Russia and Belarus will ever be out of the market.” He said. “This is something that could change very quickly.”

However, it will be difficult to replace the Russian and Belarusian supply in the short term, especially given that most of the world’s attractive potash deposits were already developed during the China-driven commodity boom in the early 2000s.

“Supply will respond to higher prices. It happened in the super cycle and that’s why the market has been depressed for so long. But if demand increases, the hangover will eventually go away. This is where we are now – At the start of a new cycle but without many attractive options in the industry’s collective hopper.”

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