Low prices for potash could increase demand in emerging markets, especially Africa, where food consumption patterns are changing as population growth and increased urbanization alter diets and boost demand for grain, according to a Reuters report.
Companies exploring Africa’s emerging potash regions – the Republic of Congo to the west and Ethopia and Eritrea to the east – say an expected drop in prices could benefit those with lower costs and high ore grades, even if it means output cuts in established mining regions such as Canada.
Potash is the common name for various mined and manufactured salts that contain potassium in water-soluble form. It is used mostly for fertilizer.
Africa’s nascent potash industry, often enjoying low costs and shallow deposits while standing to benefit from fast growth in local demand, expects to withstand the drop in prices better than emerging rivals, the report said.
The collapse last week of one of two global potash cartels is expected to take about 25 percent off prices, prompting questions over the future of projects such as BHP Billiton’s $14 billion Jansen and the K+S Legacy mine – both in Canada.
Small miners and explorers have taken a hit on their shares, and financing, already tough, has become tougher, the report said.
“We are talking about world potash prices coming down as low as under $300,” said Ed Marlow, CEO of African Potash, which is working on the early stage Lake Dinga project in the Republic of Congo. “If you are producing under $100 a tonne, there are still very good margins. There is not a lot that makes that sort of margin.”
Ethiopia faces greater challenges than Congo, due to a longer distance from mines to port, but Ethiopia’s Mines Minister Sinkenesh Ejigu is optimistic about the industry.
“We are going to have potash as a commodity in addition to gold, tantalum and gemstones,” he said.
Twelve countries produce most of the world’s potash. Canada, Russia and Belarus dominate globally.
Africa won’t begin producing significant amounts of potash before 2016 or 2017, the report said. By then it can hope prices will be stable or rising as more of the world’s population seeks more and better food.
Africa’s potash industry will rely on low costs for success, according to the report.
Africa’s new mines will initially be set up to export but increasing domestic demand will be vital to bring in investment.
This prospect has already attracted the attention of investors such as Nigerian billionaire Aliko Dangote, Brazilian entrepreneur and former CEO of Vale, Roger Agnelli, and even industry heavyweights like fertilizer group Yara, which has a stake in an Ethiopian project.
One forecast shows African potash usage could rise to between 3 million and 7 million tonnes by 2020 from demand of less than 1 million now.
Congo stands to cash in on its logistical advantage – deposits 20 km to 100 km from the port of Pointe Noire, compared with distances of 1,700 km and more for certain mines in Canada.