Australian Shares Sparty's Blog
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Main Forum•Phosphate and Potash: Is it time?
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I notice that PHOS - Phosphate Holdings is now a 100 trade triangle on Marketclub. I've also seen some commentary that it might be time to get back into phosphate and potash.
The image below shows why you probably would want to be looking at RWD for potash.
Phosphate also has one absolute stand out in terms of resource size / market cap that merits more than a cursory look as over a billion tons of 18% + phosphate is more than just a little bit. Time for a little bit of research?
suggested reading -
US fertiliser prices track higher BY JACQUI FATKA 02 Jan, 2011 04:00 AM
FROM January 2000 to fall 2008, the index of fertilizer prices paid by farmers rose 356%. In conjunction with the recession and plummeting corn prices, fertilizer values slid in 2009 but are on an upward trend again to start 2011.
In November, Purdue University economists forecasted double-digit percentage increases in the variable costs of growing corn, wheat and soybeans in 2011, with fertilizer prices being the driving force behind the increases.
A recent U.S. Department of Agriculture survey of central Corn Belt fertilizer dealers found that prices for ammonia -- a leading nitrogen source -- have risen 41.5% since April to an average of $736 per ton. During the same period, market prices for potash climbed 5% to $526 per ton, and phosphate prices rose 31% to $661 per ton.
U.S. farmers spent $44 billion on raising crops in 2010, with about 41% going to fertilizer. USDA estimated average per-acre fertilizer expenses for 2010 at $124.26 for corn, $57.32 for wheat and $22.46 for soybeans.
Fertilizer prices peaked in fall 2008 before dropping 52% last year. In 2010, prices paid by farmers were up 14%. Retail prices are lagging behind wholesale price increases (Figure). A fertilizer price increase would not be a surprise this spring.
Full repeat unlikely
Harry Vroomen, vice president of economic services at The Fertilizer Institute, explained that many of the same fundamentals that caused record grain prices in 2008 also pushed fertilizer prices to record levels. These include a combination of extraordinary nutrient demand growth, cost pressures from higher energy and raw material prices, higher costs of transporting raw materials and the falling value of the U.S. dollar.
However, Vroomen said there are some differences between the current upward movement and the record set in 2008. For instance, in 2008, world fertilizer demand was record high, and U.S. demand was very strong. After the recession, significant cutbacks in demand were seen domestically and abroad, except in India, which actually saw demand rise because of government support.
Vroomen noted that demand remains strong for nitrogen and continues to recover for phosphate and potash.
He added that phosphate inventories have never been as low as they are right now partly because the export market is strong and the U.S. market has recovered. This could put significant constraints on supplies and could leave some locations without any phosphate.
The Fertilizer Institute estimated that U.S. nitrogen use was 6-8% lower in 2008-09 and 6-8% higher in 2009-10 and will be 4-6% higher in 2010-11. Phosphate use was estimated to be down 25-29% in 2008-09, up 26-30% in 2009-10 and up another 8-10% in 2010-11.
Potash saw the biggest declines after the price surge in 2008, dropping 32-36% in 2008-09. Potash use is forecasted to be up 31-35% in 2009-10 and up another 10-12% in 2010-11.
China and India can include higher levels of potash and phosphorus than they are currently using to increase fertilizer efficiencies. As such, the underlying demand for those nutrients will continue to grow in the years ahead, Vroomen said.
Raw material prices are also lower in today's environment as natural gas prices have come off their record highs, but they still are rising. Phosphate rock is historically high but lower than the record highs of 2008. Sulfur prices are lower but rising.
Energy costs and ocean freights are also all lower than the record highs seen in 2007 and 2008. Rail rates for ammonia continue to increase.
The value of the U.S. dollar -- at which all nutrients are priced -- remains very low, near the 2007-08 levels, Vroomen said.
It doesn't look as though fertilizer prices will climb to the lofty levels seen a few years ago, but with nearly 80 million new mouths to feed annually and world grain stocks at historically low levels, Vroomen said farmers will look to fertilizer to increase production. Other demand drivers include the need for more corn to meet ethanol mandates and strong U.S. farm income.
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From an Australian perspective: The recent flooding in Queensland has seen an area as large as France and Germany go under fast flowing water. The effects of fast flowing water on Potash and Phosphate levels, in sub-soils, over agricultural land seems to be a difficult subject to delineate. I spent several hours trying to track down the relevant info and eventually gained the impression that there would likely be some reduction in some areas.
I'd be grateful for some expert advice......
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Hi Sparty, A mate at the department of agriculture stated, "Regarding your question about floods & fertiliser: Floods will reduce the amount of fertiliser in the topsoil & either deposits it somewhere on the way or take it straight out to the sea. Whether large quantities will be needed depends on the amount of nutrients in the soil, which is site specific. If needed, quantities & time of application applied would be determined by the cash flow of farmers." I hope this helps.
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Could be the reason for the big jump in UCL today??????
Nice to get an answer so readily.... well done.
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Interesting UCL action over last few days....
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I found the following graph on the percentage of Australian production of commodities coming from Queensland.
The two major Fertilizer companies in Australia seem to be Incetec Pivot and Wesfarmers. Both will be negatively impacted by the Qld floods.
UCL is intending to mine phosphate in Namibia and a long way away from production. I'm struggling to connect the Qld floods with a mine that is a few years off production and many, many thousands of kms away. Minemakers seems a more likely investment target. Just my thought.
On a personal note the Qld floods are a terrible show of natures power and my thoughts and monetary assistance will be with the flood victims.
Cheers Alite
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Hi Alite, Re ASX:UCL... They are JV partners with ASX: MAK in the Sandpiper-Meob Namibian project. MAK's Australian phosphate holdings, while not insignificant, are well eclipsed by the Sandpiper-Meob deposits as shown by the image...
and as far as I know the Australian Phosphate assets of MAK are not in large scale production as yet.IPL produced 360,000t of Phosphate in 2009 but as yet I haven't seen the 2010 production figures and I hear that their Phosphate Hill deposit needs to go underground to get at more Phosphate. Note that ASX: KRB has DSO surface ore that surrounds IPL's Phosphate Hill resource.
The yellow line outlines KRB's leaseI do not think that Australia produced any Potash in 2010 but I do note that Reward ASX: RWD has quite a large amount.
RWD has several other Potash projects that haven't been JORCed so far.I'm at a bit of a loss to understand where the Qld 2010 fertilizer in the image above in your post came from in 2010 unless it was Ammonium Nitrate?
I have explored some of this at www.australian-phosphate.com
But I may have clouded the issue re the Qld floods and Phosphate and Potash.... The floods are/were pretty well across Australia's broad-acre farming on the East coast (from Qld to Victoria) and as such Australia may need to import more Phosphate and Potash than normal. And this increased need may coincide with the resumed demand from farmers worldwide who didn't fertilize their crops over the last two years due to the Global Financial crisis... Hence we may see worldwide increased demand and this could bring giant phosphate deposits like the Sandpiper-Meob deposits into focus..... Both MAK and UCL would benefit, but have a look at their market caps......MAK = $90m, UCL=~$17m.
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Hi Alite, I think that a lot of what I was trying to say has been better put in this article: Phosphate market to hit 68.7 million metric tons by 2015 - Western Farm Press that just popped up on http://www.australian-phosphate.com/phosphate-news.html
The worldwide economic downturn that surfaced in 2008 had an adverse impact on demand and ultimately the production of phosphates in 2009, with major miners cutting down on production and even closing plants permanently. The financial crisis adversely affected the purchasing power of farmers, resulting in substantial decrease in fertilizer prices, such as that of MAP and DAP, which fell by a substantial 75% in 2009 vis-à-vis 2008 price levels. The severe demand crunch and excess inventory stockpiles further worsened the situation. In order to minimize inventories, fertilizer companies, specifically non-integrated producers with lower margins and higher costs cut down on production capacities.
Price of Phosphates recorded at US$1200/ton in 2008, witnessed a major slump to US$300/ton in 2009
Asia-Pacific driven by China, India, Australia, Vietnam and Sri Lanka reigns as the single largest regional market, as stated by the new market research report on Phosphates. Latin America, Europe and the US are the other significant phosphate markets worldwide. In terms of growth rate, Asia-Pacific is poised to display the highest CAGR of 3.8% through 2015. The Fertilizers market constitutes the largest end-user of phosphates. The segment is also projected to sail ahead at the fastest CAGR of 3.0% through 2015.
From the image below you can see that Australia has been a very minor producer-exporter to date and consequently the Qld contribution you referenced may be actually quite small in world terms.
In terms of the above table you can see how the massive 1.5b ton Sandpiper-Meob project that appears to be well on track re an intial JORC and scoping studies could make a substantial contribution.... my guess is: MAK will buy out UCL and then a large player will gobble up the whole project. -
MAK and UCL's Namibian Phosphate Project Economics
Sandpiper-Meob -
Sector wide lift off?
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UCL soaring today... Still very cheap re mkt cap:resources.... Probably the world's cheapest major/giant phosphate play.
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Cyclone Yasi may shut down Mt Isa, the source of 75% of Australia's phosphate fertiliser produced by Incitec Pivot. Who will take up the slack?
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It seems Yasi has only delivered much wanted rain to Mt Isa without unwanted winds. An excellent result for Mt Isa.
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Hi Alite et al, A very strong article in today's Miningnews.net outlines a lot about Mine Makers (ASX: MAK) future prospects...
"Minemakers managing director Andrew Drummond summed it up perfectly: “If investors are thinking phosphate, they should be thinking Minemakers.”
“As far as we’re aware, we have more phosphate than any listed company in the world on any bourse.”
And now that MAK is looking at a vertically integrated model for its giant Wonarah Phosphate deposit that would take its Phosphate through to fertiliser production, MAK is starting to look like a world class company in the making....
As this blog's readers know we have been following the Phosphate story fairly closely and have made www.Australian-Phosphate.com for people wanting to get up to speed quickly.
I have also posted quite a few times about UCL, MAK's partner in the giant Nambian Marine Phosphate deposit... that according to miningnews.net is "making waves in the global phosphate sphere."
I regard both MAK and UCL to be remarkably cheap ways to get into the phosphate game.... UCL is the cheapest EV/Resource in the sector.
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Hi Sparty, Agreed MAK seem to be making the right decisions. The quote that the Sandpiper deposit could be mined for just US$57/tonne showed me that you could be right about UCL. I still need to run the numbers. A quick look at market capitals of UCL shows a market capital of 32mill for UCL and 131mill for MAK. A quick look at UCL's presentations show they are just, in my view, a finance company adding no value to any project other than start up capital (which was clearly needed for MAK). I'll go with value makers: MAK
Alite
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Hi Alite, I hold both... UCL has made some nice gains.... I like the volatility... the long term hold is MAK but I wonder if we won't see a predator take out both. Has to be one of the world's cheapest very large phosphate plays... MAK owns 9% of UCL
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Today's action for Reward ASX: RWD was pretty interesting
Will history repeat if so there is a LOT of upside to come....
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RWD is continuing its strong upward march. I think to put it simply: Potash is coming into great demand on the back of several years of GFC induced under-usage. And if you want to play Potash then RWD is the only ASX company with very large amounts and an attractive valuation... will history repeat?
I see that Michael Ruane's other company that has Australia's largest Vanadium deposit (by far) is also up.... looks like Ruane's binoculars are sharply focused....Read about Australia's unloved elephant hunter's companies turning
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Australia will have to import fertiliser only if we cannot produce it. Which we can
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Sparty: UCL is at 11.5c..(Undervalued). and MAK at 54c (seemingly being highly valued)... though I agree wit the market.
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Cash and sovereign risk may well be the key.
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Hi Sparty, Reward Minerals (RWD) has a good resource. But I do not see the price of KCl becoming high. Put in another way, there are many cheap resources of KCl.
An example: STB (which is in the ASX). STB has a JORC Resource of 548Mt @ 18.6% KCl which includes 119Mt @ 23% KCl.
This is much bigger that RWD's resource. It is unknown whether the mining of one resource is cheaper than the other but what is known is that the price of KCL will likely never be high (supply is abundant). The lowest cost mine will win and generally that means that the highest output mine wins (lowest overheads / tonne).
Sparty, you hit on so many good commodities but I don't think that Potash is one.
Phosphate is another matter... UCL at 13c / share and MAK at 45c/share. We are in a share downturn now... maybe it is time, or soon will be the time, to buy UCL and / or MAK.
Cheers Alite
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Hi Alite, have a read around this page: http://www.australian-phosphate.com/potash-news-australia.html
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I see a lot in your link, what am I looking for. Alite
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:) The stories re Potash demand increasing.
Below is the chart for RWD..... remember I suggested getting in around August last year....
The chart at the bottom indicates (I think) the upside for Potash prices... note that over the last few years farmers have not been adequately fertilizing both here in Australia and overseas GFC).... the increased pressure from bio-fuels adoption will also play a part.
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Hi Sparty, just so that you know I believe that I should have a fertilizer based shares(s) in my portfolio. At this time I do not but I'm not sure which to choose...
Is your statement that farmers have not been fertilizing a speculation or do you have proof? I think back 3 years and fertilizer prices were through the roof. Clearly the farmers were fertilizing then. How often do they need to fertilize? Is this just cyclical?
Whatever your answer it is clear to me that the need for more food to feed the ever increasing human population with a constant, or even reducing, farmland base means that more food needs to be produced from the land. And the only way to do that is by improving the productivity of the land… hence the fertilizer requirement.
The big question I have is, do current Fertilizer companies have sufficient stock to supply the market for the next 5 − 10 years?
Also: where would South Boulder Mines (STB) sit in your graph? Their possible output is huge. Could they quell prices?
RWD has Australian based mines that are based on K2SO4 instead of the traditional KCl. Are there any benefit / negatives of the sulphate base?
Alite
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Hi Alite, Re use of Potash and Phosphate by farmers.... there is abundant literature that explores the decline in usage...
Global potash supply and demand After years of trending upward, fertilizer use slowed in 2008. And after hitting record highs in mid-2008, prices dropped later in the year because of the softening demand. The International Fertilizer Industry Association (IFA) says significant fertilizer stockpiles could be found in the major potash consuming nations of Brazil, China and the U.S.
The worldwide economic downturn is the primary reason for the declining fertilizer use, dropping prices and mounting inventories. http://www.southernstates.com/articles/ca/potash-global.aspx
Re ASX: STB. They have the Colluli Potash Project in Eitrea with a JORC of 119mt at 23%KCL in a very shallow deposit. They have a lot of exploration upside.
I do note that Eritrea is seen as having high-very high political and operational risk and medium security and terrorism risk.
Do you own STB?
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I have updated the Potash JORC's -note that the new chart shows those with >10Mt of Potash
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Sparty, I would love to do a Mkt Cap / Resources to find where the value lies... but sadly I'm short of time. A valuation takes near 6 hours and doing 3 of them is outside my current time capability. With any luck I'll get sacked from my day time job :-) and my time opportunity will open up. It would be great if there was another who reads this blog that could give their valuation. Alite
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Hi Alite, I have sent you the research mentioned....
I hold RWD :)
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Hi Sparty, Share price wise RWD is holding up nicely at $1.00/share up from 50c a year ago though no change from April 2011, the start of the 2011 decline. Holding up in a down market is impressive. The market seems to agree with you that RWD is a good share.
Alite.
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I think we are getting near to "crunch" time re the Martu land rights.
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Monday
Alite I think you might do a Mkt Cap/Resources to find where the value lies and take note of the country risks..... (ELM - Congo, STB - Eritria, ORE - Argentina, RWD - Australia)
