FocusPotash may have gained unexpected benefits during crisis

03 June 2011 12:40  [Source: ICIS news]

By Lauren Williamson

LONDON (ICIS)--A $50m (€35m) expansion project at Canpotex’s main Vancouver port terminals is nearing completion, alleviating some supply chain pressures faced by the potash exporter as global demand grows, a company official said on Friday.

The flurry of expansion efforts in Canada signifies a strong rebound after the 2008-2009 economic recession, and market insiders say the downturn may have provided some unexpected benefits to the potash industry.

Canpotex, owned by Canada’s Agrium, Mosaic, and Potash Corporation Saskatchewan, is responsible for the international sales of these companies’ potash. It has a 35% share of the international potash market, and in 2010 it sold 8.2m tonnes of potash, with revenues exceeding $30bn (€21bn).

The expansion project at the Vancouver port’s Neptune Terminals, announced in 2009, will improve the rail, conveyor and material handling systems at Canpotex’s primary port that serves its largest overseas markets, Brazil and Asia.

This expansion is the largest such capital investment at the Neptune Terminals, which handle 70% of Canpotex’s yearly potash shipments, and now has a storage capacity of 210,000 tonnes and annual throughput of 10.5m tonnes.  

Interestingly, the Vancouver port expansion was planned in the lead-up to the financial crisis, when Canpotex was exporting between 8m-9m tonnes of potash a year in 2007 and 2008.

The market outlook during that time was aggressively bullish: spot sale prices for standard muriate of potash (MOP) climbed to above $980/tonne FOB (free on board) Vancouver, and there were reports of MOP sales being concluded at over the $1,000/tonne CFR mark.

But in 2009, potash prices witnessed a staggering and unexpected decline. Standard MOP spot prices fell to $320/tonne FOB Vancouver; Canpotex sales fell from 9m tonnes in 2008 to just over 3m tonnes in 2009 – levels that had not been that low since 1993. 

Though hard to see at the height of the economic downturn, the timing of the crisis may have actually provided certain benefits for Canadian potash producers as well as exporter Canpotex.

“From an outside perspective, it was probably good [for Canpotex and Canadian potash producers],” said a US based trader.

“Agricultural commodities and their inputs always bounce back after a recession and the [economic] dip gave [the industry] time to prepare for future growth. It had to happen eventually because of growing populations and growing food needs.”

International Fertilizer Association (IFA) officials announced at an industry conference in May that potash is geared to recover fully to the pre-crisis demand levels seen in 2007 and 2008, with global demand pegged between 55-60m tonnes this year.

And Canpotex isn’t the only company making preparations to accommodate that growth.

At a fertilizer conference in Toronto, Canada on Wednesday, Potash Corporation Saskatchewan’s CFO Wayne Brownlee told participants that the company was considering boosting its production capacity to 22m tonnes/year.

Already, brownfield expansion projects at its mines in Saskatchewan and New Brunswick are set to bring its production capacity to 17.1m tonnes/year by 2015.

An Agrium executive also recently announced its company’s intentions to boost potash production capacity by 1m tonnes, bringing its total capacity to 3m tonnes/year by 2014.

Similarly, the Canadian transportation industry is preparing for the expected growth. Just last month the Canadian National Railway Company announced a new initiative to expedite the transportation of potash from mine to export facilities on the coast.

If global potash demand follows the fertilizer industry’s steady growth projections over the next five years and Canadian potash producers manage to see all expansions through, it is quite possible Canpotex will control more than 35% of the global market.

This, however, will also depend a great deal on the strategic plans of Canpotex’s primary competitor, Belarusian Potash Company (BPC).

BPC officials – while remaining vague – say there is new production capacity coming online, particularly with the merger of Uralkali and Silvinit, and it has every intention of remaining a competitive global potash exporter.

($1 = €0.69)

For more information on potash and fertilizers, visit ICIS pricing fertilizers

By: Lauren Williamson
+44 (0) 20 8652 3214

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