China's campaign to heat millions of extra homes this winter by redirecting natural gas has forced their domestic fertilizer producers to cut production in half.
Due to China being the world's top agricultural market, the impact of halving their domestic fertilizer capabilities should instantly be felt worldwide.
Given the heightened state of China's agricultural pressure, boost for fertilizer firms around the world is plausible, including Potash Ridge Corporation (TSX: PRK) (OTC: POTRF), CF Industries Holdings, Inc. (NYSE: CF), Nutrien Ltd. (NYSE: NTR) (TSX: NTR), Sociedad Química y Minera de Chile S.A. (NYSE: SQM), and Verde Agritech Plc (TSX: NPK) (OTC: AMHPF).
The result of the decline on fertilizer production in Chinas has been a spike in agricultural production costs, as the sector scrambles to make up the gap. Prices have soared on urea, synthetic ammonia, and compound fertilizers—Domestic urea having risen 34 percent; and compound fertilizer up 17.1 percent. Where China will seek its supplies to make up the fertilizer shortfall is still up for grabs.
Imports from South American firms, such as Sociedad Química y Minera de Chile S.A. (NYSE: SQM), and Verde Agritech Plc (TSX: NPK) (OTC: AMHPF), could come in the short term.
However, as trade negotiations continue between China and North American leaders, there's a long-term possibility of supplies coming from North American firms—Such as CF Industries Holdings, Inc. (NYSE: CF), Nutrien Ltd. (NYSE: NTR) (TSX: NTR), or even up-and-comer Potash Ridge Corporation (TSX: PRK) (OTC: POTRF).
With major projects in development in both the US, and Canada, Potash Ridge soon could eventually export their rarer form of potash-based fertilizer, known as sulfate of potash (SOP), to world markets including China. What could be a long-term result, is a Chinese agricultural sector that becomes accustomed to slightly higher operations costs, but ultimately the potential for higher yields.
WILL CHINA TURN TO INTERNATIONAL POTASH?
China is the world's largest commodity market, and is becoming known as the most obvious buyer for large projects. Therefore, as the needs of the nation shift, so too will China's buying habits.
While more headlines have been made for China's push into lithium to feed growing demand for electric vehicles (EVs), the immediate pressures on the agriculture sector could force the country to entertain buying fertilizer feedstocks around the world—of varying quality.
That could lead to a weighing of merit between different types, including muriate of potash (MOP) and sulfate of potash (SOP). Among the fertilizers on the market, sulfate of potash (SOP) is one of the most highly sought after premium fertilizers in the world. SOP has more benefits for the end user, compared to its MOP counterpart, which is the more common of the two.
By making plants more resilient to drought, frost, insects, and disease using SOP improves the quality and crop yields in the applied areas. SOP has been known to improve the look and taste of foods, compared to those grown with MOP, while also improving the plant's absorption of nutrients like phosphorous and iron. Because of these qualities, SOP is favourably used on higher-value crops like fruits, vegetables, nuts, and tea.
POTASH RIDGE OFFERS SOP OPTION
Investors may be more inclined to pay attention to the price difference between SOP and MOP products is significant. MOP potash prices range between US$220-280 per tonne FOB (free on board). SOP products in North America fetch closer to US$630 per tonne. Globally, demand for SOP is unmet by a margin of 1.5 million tonnes—a third of that demand coming from North America, where there's only one existing producer in North America.
Potash Ridge Corporation (TSX: PRK) (OTC: POTRF) is looking to be the next SOP producer in North America, with its Valleyfield and Blawn Mountain projects. Valleyfield has the potential to bring a new supply in just over a year.
Blawn Mountain is projected to potentially be the lowest cost SOP producer in North America. Starting with Valleyfield, Potash Ridge wisely chose the mining-friendly province of Quebec, on a property capable of producing 40,000 tonnes per year, and being in operation within 15 months. But it's the Blawn Mountain project that could be the company's biggest game changer. Many see the Utah asset as the company's future flagship.
At a projected cost of only US$177 per ton, Blawn Mountain would be the lowest cost producer of SOP on the continent—complete with a bonus upside of expansion potential and alumina resources in its tailings.
Management projects that once in production, Blawn Mountain will command US$107 million in average cash flow—which the company projects is plausible in the next 3 years. Each SOP project is set to use a different production method.
Valleyfield's plan involves a chemical reaction (Mannheim Process)—commonly used in Asia, the Middle East and Europe. Blawn Mountain will utilize a mineral processing method (Alunite), proven to effectively produce SOP from a soluble and granular form. A key factor for Potash Ridge or any other potential North American SOP producers is the projected supply gap, of which now China's woes will also have an impact.
Current SOP production is 400,000 tonnes per year, whereas consumption is 500,000 tonnes per year. Between now and 2020, demand for SOP is expected to double, as the fertilizer market itself is set to grow—Despite China's production slowdown caused by outside factors (ie. Natural gas delegation).
The gap won't be filled cheaply. The Blawn Mountain project alone is projected to have a capex of US$456 million to get to production. But should a Chinese buyer or partner come along in that country's time of desperate need to keep its agricultural sector well fed, the cost may seem worth it. As well, the timeline could very well be shortened, if injections come from abroad.
China's agricultural needs are just recently swinging, and the long-term impact is yet to be seen. However, expect a flurry of activity in the potash and fertilizer markets in 2018 because of China's shortage.
OTHER POTENTIAL COMPARABLES IN THE FIELD INCLUDE:
CF Industries Holdings, Inc. (NYSE: CF)
CF Industries manufactures and distributes nitrogen fertilizers and other nitrogen products worldwide. The company operates through Ammonia, Granular Urea, UAN, AN, Other, and Phosphate segments. Its principal nitrogen fertilizer products include ammonia, granular urea, urea ammonium nitrate, and ammonium nitrate. CF Industries Holdings, Inc. was founded in 1946 and is headquartered in Deerfield, Illinois.
Nutrien Ltd. (NYSE: NTR) (TSX: NTR)
Nutrien Ltd. produces and distributes potash, nitrogen, and phosphate products for agricultural, industrial, and feed customers worldwide. It offers potash crop feed, fertilizer, industrial, metal finishing, and purified acid products, as well as blends. The company is also involved in the retail operations that serve growers in seven countries across three continents. The company was formerly known as Potash Corporation of Saskatchewan Inc. and changed its name to Nutrien Ltd. in January 2017. Nutrien Ltd. was founded in 1953 and is headquartered in Saskatoon, Canada.
Sociedad Química y Minera de Chile S.A. (NYSE: SQM)
Sociedad Quimica y Minera de Chile S.A., is a producer of potassium nitrate and iodine. The Company produces specialty plant nutrients, iodine derivatives, lithium and its derivatives, potassium chloride, potassium sulfate and certain industrial chemicals. Its segments include specialty plant nutrients, industrial chemicals, iodine and derivatives, lithium and derivatives, potassium, and other products and services Lithium and its derivatives are used in batteries, greases and frits for production of ceramics. Potassium chloride is a commodity fertilizer that is produced and sold by the Company across the world.
Verde Agritech Plc (TSX: NPK) (OTC: AMHPF)
Verde Agritech is an agri-tech company focused on the mining of glauconitic meta-argillite material, a potassium silicate rock, used in the production of TK47. It holds interests in the Cerrado Verde potash project and the Calcario limestone project located in western Brazil. Verde Agritech was founded in 2005 and is headquartered in Belo Horizonte, Brazil.
For a more in-depth look into PRK you can view the in-depth report at USA News Group: http://usanewsgroup.com/2018/02/05/the-potash-sector-is-growing-silently-at-a-massive-pace/
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