By Leia Toovey- Exclusive to Potash Investing News
Low inventories have granted potash and phosphate producers plenty of reasons to hike prices, and purchasers have been bearing these increases, fearing that if they don’t agree to contracts in a timely manner they may miss out on securing supplies.
Phosphate underwent the highest price hike. Phoschem, the marketing arm for Potash Corp (NYSE:POT) and Mosaic (NYSE:MOS), settled a deal with Indian buyers to supply 1 million tonnes of diammonium phosphate at a rate of $677 per tonne, including freight, a 10 percent price increase over the last contract.
In August, Canpotex, the marketing arm of Potash Corp, Mosaic and Agrium (NYSE:AGU), agreed with Indian customers to hike potash prices to an average $500 per tonne for the last quarter of 2011 and the first three months of next year. After months of wrangling, at an average of $500 a tonne, compared with $390 a tonne that Indian customers had been holding out for early in the year.
The low-stockpile situation is not a new phenomenon. In fact, producers have been warning about a looming supply shortage for months. North American potash stocks were, as of the end of June, approximately 70,000 tonnes below average levels for the time of year, despite the fact that stocks had increased by 105,000 tonnes during the month. Potash stocks are below their five-year average, with Canpotex claiming that its North American supplies for the third-quarter are basically sold out.
As the demand for fertilizers sees unprecedented growth, the race is on to secure new supplies. According to a USGS study in Iraq, the country may host the second-biggest potash reserves in the world. The study found four large potash reserves, which are believed to contain 5.75 billion tonnes of phosphate, equivalent to 9 percent of the global reserves. Four phosphate deposits – known as Akashat, H3, Ethna and Swab – are the most promising discoveries. The two biggest deposits, Akashat and Swab, are thought to hold 1.7 billion and 3.5 billion tonnes of phosphate respectively. While the grade of these deposits is slightly below the average grade of 25 percent, the volume, makes the deposits a respectable supply. The US Geological Survey has been working with its Iraqi counterpart to map the country’s non-oil mineral resources. The Iraqi government plans to turn the town of Akashat in Anbar province into a phosphate mining center. The Iraqi government aims to export the phosphate to Asian markets.
South Boulder Mines (ASX:STB) is moving forward, on schedule, with the development of its Colluli potash project in Eritrea. According to CEP Lorry Hughes the definitive feasibility study had commenced on the Colluli potash project, which would cost between $500 million and $750 million to deliver. “We are targeting an initial production rate of between one- and two-million tons of potash,” Hughes said. “On current project progress, our operating costs should emerge among the lowest 10 percent of global potash producers,” he added. An updated Joint Ore Reserves Committee resource and scoping study for the 548-million-ton Colluli deposit is due shortly.“ Colluli is the world’s shallowest potash deposit, and is accessible as low as 16 m below the surface,” Hughes said. South Boulder Mines plans to open the mine in 2016. Colluli will be the world’s first open pit potash mine.
Allana Potash Corp. (CVE:AAA) has signed a feasibility study contract with ERCOSPLAN Ingenieurgesellschaft Geotechnik und Bergbau for its Ethiopian Potash Project. The feasibility study is scheduled to be completed in the second half of 2012 and will begin immediately. Late in August, Allana Potash Corp. had awarded an Environmental and Social Impact Assessment Study (ESIA) on its Ethiopia potash project to Environmental Resources Management (ERM). The ESIA is scheduled to be completed around August 2012 and will form an integral part of the feasibility study the company initiated yesterday.
Russian phosphate producer Phosagro reported first half 2011 net income of 12.291 billion rubles, a 156 percent increase in net income compared to the same period last year. EBITA increased 106 percent, and revenues increased 35 percent. The company claimed that the increase in earnings was due to an increase in nitrogen fertilizer sales and prices, offsetting a 17 percent decrease in phosphate sales.
Securities Disclosure: I, Leia Toovey, have equity interest in Potash Corp or Saskatchewan.