Contents

Introduction: A World Hungry For Fertilizers

The next few decades will see tremendous pressure on the world's ability to produce enough food for everyone - in part due to the growing number of mouths and in part due to the addition of more animal products to billions of people's diets. Meanwhile, the area per capita suitable for agriculture is shrinking. All of this means the land dedicated to making food must be increasingly productive.

The world population is expected to grow by more than a third from 2009 to 2050, while total arable land will grow just 5%, according to the United Nations Food and Agriculture Organization (FAO). Feeding a population of 9.1 billion in 2050 means increasing overall food production by about 70%, and 90% of crop production growth will come from higher yields and cropping intensity. The advent and growth of the biofuel market will further increase the need for products like corn and sugarcane that serve as feedstock.

While it will be critical to address the ecological impacts of industrial fertilizer use, particularly on water systems, unless the global development model changes entirely, fertilizers are a necessity.

However, despite longer-term certainty about increasing consumption, the near-term market conditions are not so appealing for mining projects focused on the fertilizer minerals potash and phosphate. After a fertilizer price boom in the late 2000s due to rising food prices and scarcity, prices slumped as farmers chose to consume less. Potash and phosphate prices rose as high as US$1,000/t and US$300/t, respectively, in 2009.

"High prices were probably the worst thing that could have happened to the market because they absolutely killed demand," says analyst Spencer Churchill at Paradigm Capital. "Farmers just said, 'we don't really need to put this on every year' and they reduced their demand profile by 25%. Just now, this year, we got back to the volumes that we had at the previous peak."

Prices took an even deeper cut in mid 2013 with the breakup of Russian-Belarus consortium BCP, which together with Canadian-US cartel Canpotex controlled 70% of supply. Potash prices quickly sank by a quarter and other fertilizer products like phosphate followed suit.

In the near term, potash prices could find support from low global inventories as well as Russian plans to permanently shut down a mine that today accounts for 3% of supply. Current spot potash prices average around US$350-375/t, depending on the region, and phosphate rock US$120/t. Paradigm forecasts potash prices could rise between 0-5% in the coming year.

"Both for phosphate and potash, demand and supply are much more balanced now than they have been in the past," says the analyst.

Brazilian corn harvest. Credit: AFP Forum

Even so, International Fertilizer Industry Association (IFA) forecasts show growing global surpluses in potash and phosphate over the next few years as supply growth outpaces demand. That said, Latin American fertilizer consumption is expected to grow faster than that of any other region, driven largely by Brazil, providing a good long-term argument for potash and phosphate mining projects in the region, which today is heavily dependent on imports.

Brazil in particular still has large areas of arable land yet to enter agricultural production, whereas North American agriculture, for example, has nowhere left to expand. Indeed, FAO figures predict an increase of 12% arable land in developing nations versus an 8% contraction in developed countries to 2050.

"When they get the right incentives from corn and soybean prices, they will do that," says Churchill. "They are not going to do it this year, but over time you will see arable land increased in South America and that will increase the demand for fertilizers."

That means opportunity for mining projects. There are many types of fertilizers, mineral and chemical, and farmers will always use a blend of products to cover the specific needs of their soil and type of crops. Different soils require more or less fertilizer application, as they may be naturally richer or poorer in a certain nutrient and farmers will have different cropping cycles and intensity levels. While potash and phosphate may face some competition from synthetic fertilizer products like urea or ammonia, their status as bearers of primary macronutrient necessary for all plants to thrive leaves little room for substitution.

Figure 1: Potash Global Production and Reserves

Figure 2: Phosphate Rock Global Production and Reserves

Figure 3: Potash and Phosphate Supply-Demand Projections to 2018

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