Over the previous twelve months, the ongoing shift to renewable energy has created a lot of hype regarding commodities used in battery metals, such as lithium, nickel, and cobalt. However, another group of commodities that has flown under the radar this year is potash, specifically sulphate of potash (SOP) and muriate of potash (MOP), whose prices have recently soared to all-time highs.
Potash is a key ingredient in the make-up of fertilisers, providing essential nutrients for soils so plants can healthily grow.
Their impact on food production is vital, with mineral fertilisers accounting for 40-60% of the world’s food supply. With the United Nations predicating the world’s population to increase by 2 billion persons in the next 30 years, potash is essential to the future growth of the human population.
However, recent geopolitical events have revealed just how fragile the potash space is, and with large quantities of potash in Australia, there is a great potential for Australian potash mining companies to cash in, providing the world with the essential nutrients needed to survive.
What is “Potash”?
When crops are harvested, important nutrients are removed from the soil as they follow the crop and end up as the final food item. Fertiliser is then placed back into the earth, enabling the soil to be replenished with nutrients from the fertiliser. Without this process, crop yields will deteriorate over time.
Potassium (K), along with Nitrogen (N) and Phosphorous (P), is one of the key ingredients used in fertilisers to recharge this soil, providing a platform for plant growth and development.
“Potash” is a specific reference to potassium that is used in fertilisers.
The name “pot ash” originates from before the Industrial Era, whereby trees were burnt, and the ash was placed in a pot and mixed with water to create fertiliser.
Potash or potassium plays a crucial role in maintaining the turgidity (or rigidity) of plant cells, allowing the plant to obtain maximum leaf extension and stem elongation, which helps to achieve ground cover that enables interception of sunlight, thus allowing the plant to reach its full growth potential.
Potash also helps with the movement of water, nutrients, and carbohydrates in plant tissue, helping to regulate the opening and closing of the stomata, which in turn regulates the exchange of water vapor, oxygen, and carbon dioxide throughout the plant.
And just like it helps with the circulation of nutrients in plants, it does the same thing for the human body, being vital for synthesising protein and metabolising carbohydrates, regulating the heartbeat, and ensuring proper function of the muscles and nerves.
Which is what makes it key to the current and future development of both humans and plants.
Sulphate of Potash (SOP) v Muriate of Potash (MOP)
Sulphate of Potash (SOP) & Muriate of Potash (MOP) are the main types of potash that exist today.
MOP accounts for around 85 per cent potassium fertilisers globally, whilst SOP accounts for around 10 per cent, and the others, including sulphate of potash magnesia (SOPM) and carnallite, make up that last 5 per cent.
MOP, or potassium chloride, is used for cultivation of carbohydrate crops such as wheat, oats, and barley. It has a total global market size of approximately 55-60 million tonnes per annum.
MOP can be beneficial for soil that is low in chloride, building the plants’ disease resistance by promoting thickness of the outer cell walls. However, it is also harmful, as it contains chloride, which can be damaging to the development of crops.
The chloride interferes with a plant’s ability to take up water, meaning that the levels of MOP have to be carefully managed, and must only be used on select crops.
“It is made up of approximately half chloride and as such, can’t be used in fresh produce where the chloride would burn the foliage or the roots of the plants,” Keren Paterson, the CEO and director of Trigg Mining (ASX: TMG) states.
SOP, or potassium sulphate, contains sulphur, which is used by plants to produce proteins, amino acids, enzymes, and vitamins, while also aiding resistance to disease.
It is used for high-value chloride sensitive crops, such as fruits, vegetables, nuts coffee and even cut flowers.
“SOP has zero chloride content and is therefore ideal for these products,” Ms. Paterson states.
SOP improves both crop quality and yield, and also makes plants more resilient to drought, frost disease and insects. SOP has been known to improve the look and taste of foods and can boost a plant’s ability to absorb key nutrients like phosphorus and iron.
SOP is not a naturally occurring mineral, and usually must be produced through chemical methods.
Because of the resource-intensive processes used to create it and its absence of chloride, SOP is priced higher than MOP.
There are 3 main methods for producing SOP.
One is named the Mannheim process. It involves pouring potassium and other raw minerals into a muffle furnace that is heated around 800 degrees Celsius, causing a reaction to occur between potassium chloride and sulfuric acid. A secondary process is then required to produce a soluble grade product. Simply put, it combines MOP with sulphuric acid to create SOP. SOP production like this accounts for roughly 50 to 60 percent of global SOP supply.
This method, however, does have some flaws.
“The Mannheim process is highly energy intensive and requires a synthetic chemical process, where it requires the purchase of muriate of potash plus sulphuric acid plus energy to produce the product with hydrochloric acid as the by-product. The high energy input into that makes it incredibly vulnerable on a supply side when we have such price shocks in energy at the moment.” Ms. Paterson states.
A second method is through brine production, which involves having bores and trenches harvesting the drainable brine followed by solar evaporation, crystallisation, and purification.
About 35% of the world’s SOP production is produced from natural brines via solar evaporation.
Currently, Australian potash companies, Kalium Lakes Ltd (ASX: KLL), Agrimin Ltd (ASX: AMN), Australian Potash Ltd (ASX: APC), Reward Minerals Ltd (ASX: RWD), and Trigg Minerals Ltd (ASX: TMG) have SOP brine projects that follow this method.
Due to the high energy inputs, the infrastructure needed for the Mannheim process, “the brine method has a much lower carbon footprint than the Mannheim process,” Ms. Paterson states.
The third method is via sulphate salts reaction. MOP can be reacted with various sulphate salts, such as sodium sulphate, to produce a double salt and then decomposed to yield potassium sulphate (SOP). Around 20% of the global SOP production comes from this process.
It is important to note that SOP is the preferred method and can be used for both. However, due to cost and availability, MOP is more prevalent.
The Future of Potash
According to the United Nations, the world’s population could grow to around 8.5 billion in 2030 and 9.7 billion in 2050, before hitting 10.4 billion in the 2080s.
As the population is growing, so is the demand for food, resulting in a significant rise in the number of agricultural activities worldwide.
Also, urbanisation and industrialisation has resulted in the shrinkage of availability of land, forcing more farmers to increase the use of fertilisers to enhance the yield per hectare, boosting the demand for potash rich fertilisers.
As a result of these factors, the global potash market is expected to increase by US$22 billion between 2021 and 2026, expanding at a compound annual growth rate of 4.44% during that period.
Another factor impacting the growth of potash, particularly SOP, is the increase in China’s middle class, which has grown from roughly 3 per cent in 2000, to more than 50 per cent in 2020.
According to a report by the University of Chicago, the country is the largest consumer of potash fertiliser, accounting for approximately 20 percent of world potash consumption.
With regard to SOP, China alone accounts for two-thirds of the global production.
This rise in the middle-class sees more residents demanding better diets, including fruits and vegetables, which requires SOP in fertilisers.
In addition, Australia’s potential impact on the future of potash is huge.
Currently, Australia imports all of the potash needed for agricultural output.
However, with SOP brines located throughout Western Australia, the nation has a promising future that could turn the country into a global front runner for production and exportation.
The brines provide for the perfect conditions for SOP to organically form, as they are filled with a high sodium and chlorine content.
In addition, the brines meet a lot of the ESG requirements.
There are no open pits that damage the earth, no rock waste, or tailing storage facilities associated with brines. They also harvest solar powered energy to produce a natural product.
With the production of these mines, Australia will no longer need to rely solely on imports, reducing the freight costs associated with importing the SOP.
However, there are also risks that harm the supply of potash.
Geopolitical Factors Affecting Potash
Russia, Belarus, China, account for 50% of the global MOP and SOP trade. So, any disturbance to one of these countries threatens the global supply.
Over the past 18 months there were disturbances to all three.
Initially, the EU imposed sanctions on Belarus, restricting the exportation of potash in response to “the escalation of serious human rights violations in [the nation] and the violent repression of civil society, democratic opposition and journalists.”
A few weeks later, the Chinese government introduced a policy to slow down exports of all fertilisers to combat growing concerns of price movements while securing its own domestic food supply, further tightening the potash market.
Then, when Russia invaded Ukraine in February, global sanctions on Russian exports were issued, and the global supply of potash would take another brutal hit.
The International Fertiliser Association stated that “the war in Ukraine is the biggest geopolitical disruption to hit the global fertiliser market in decades.”
Canada is the other significant player in the global potash space, accounting for an additional 20 per cent of the global supply of MOP.
The recent geopolitical tensions have meant Canadian firms, such as the world’s largest potash company Nutrien (TSE: NTR), as well as K+S Potash, and Gensource Potash (CVE: GSP) ramped up production at existing Saskatchewan mines to meet the exigencies of “constrained supply.”
Conclusion
The global demand in potash, as well as multiple supply disturbances, have caused the price of potash to skyrocket, with MOP increasing by 239% and SOP increasing by 114% in the 12-month period recorded in June.
As a result, many potash companies were able to cash in globally.
Nutrien’s stock price has grown by 30% over the past 12 months, whilst Sociedad Quimica y Minera de Chile (NYSE: SQM) has grown by 70% over that same period and Mosaic Co (NYSE:MOS) grew by 22%.
And with many potential SOP mines in Australia, including Trigg Mining’s Lake Throssell project, containing a total drainable Mineral Resource Estimate of 14.4Mt of SOP, plus an additional Exploration Target, and Australian Potash’s Lake Well’s project, which is forecast to produce 170,000tpa of SOP, Australia has a strong chance to be a massive player moving forward.
