Potash refers to a variety of potassium-rich compounds that are usually mined from underground deposits. The most common use of potash is as a plant fertilizer in agriculture – potassium can strongly boost crop yields by strengthening plants against stress and disease, deterring weeds and parasites, and improving the transfer and retention of water and nutrients from the soil to the plant.
Global population growth and associated food demand to drive demand of potash
Potassium-based fertilizers crucial to maintaining and increasing crop yields
Russia and Belarus both major potash producers
Indeed, alongside nitrogen and phosphorous, potassium is one of the three key nutrients required for healthy plant growth. Outside of agriculture, other uses for potash – which account for around 15% of total consumption1 – include applications in aluminum recycling, brewing beer, and synthetic rubber manufacturing. Several global trends point to the strong development of potash demand over the coming years and decades. First, steady population growth means, of course, growing demand for food – something that must be met from a finite amount of agricultural land. This need for higher crop yields and more intensive food production must also be achieved against a background of depleted soil fertility in some areas, making the use of effective and safe fertilization an ever-greater imperative. Indeed, despite usually being a mined commodity, potash’s limited environmental footprint makes it much more attractive than many other chemical fertilizers – compared to some other fertilizers, the production of potash is much less energy intensive, while its use does not pose a risk to the integrity of waterways.
The commercial production of potash relies on mineral deposits formed millions of years ago by the evaporation of bodies of water. These evaporites are normally found deep below the earth’s surface and are thus obtained via traditional underground mining where ores are brought to the surface before being refined. Alternative methods of production include solution mining, where water is pumped into subterranean deposits which are then dissolved and brought to the surface for drying and evaporation – a more energy and water intensive process than conventional mining.2 Global potash production is currently strongly concentrated in Canada – around one third of global output in 2020 – with Russia, Belarus and China also making significant contributions
In terms of its structure, the potash market is consolidated with the top ten producers controlling around 85% of global supply. These large producers typically set prices in response to demand considerations, with smaller producers largely occupying the role of price-takers.
Chart 1: Percentage share of global production
Source: U.S. Geological Survey, Mineral Commodity Summaries, January 2022
Supply, demand, and price outlook
Global population growth and associated food demand, as well as declining arable land availability due to urbanization in many developing countries, point to continuing strong potash demand growth for the foreseeable future.3
Indeed, recent decades have shown that growth in potash production outstrips growth in crop production, which itself outstrips population growth.
Furthermore, there are currently no known substitutes for potassium-based fertilizers and while farmers will occasionally take “potash holidays” in reaction to elevated pricing, these are normally short lived as maintaining high soil potassium levels is seen as crucial to consistent crop yields and farm profitability.
Chart 2: Global Potash consumption growth (CAGR between 2015-2020)
Source: FAO (2017), FD
With respect to supply, the ongoing conflict in Ukraine is having some effect; while there currently are no sanctions on fertilizers, there remains a slowing in trade due to logistical reasons – for instance, the cost of insuring ships passing through the Black Sea has risen dramatically.4 Other producers currently have limited capacity to address shortfalls resulting from decreased Russian and Belarusian exports, and such shortfalls in an already tight market are likely to provide considerable price support for the foreseeable future. Indeed, a prolonged conflict will only exacerbate these issues.
Chart 3: CAGR, 1993-2020 (%)
Source: BHP, Potash outlook and fundamentals, 17 June 2021
2) BHP, Potash outlook and fundamentals, 17 June 2021
3) Fox-Davies, “Potash & Phosphate – Investing in Global Growth”, Mining, 16 July 2021
4) Deutsche Bank Research, “European Fertilizers”, Industry Update, 8 March 2022
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