EDITOR: | August 22nd, 2013

Jansen unlikely a threat until 2020 – Scotiabank; ThermoPotash works in Brazil; Asian gold demand stays strong

| August 22, 2013 | No Comments
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Potash prices won’t fall below $300/tonne, opines Scotiabank. The Toronto-based bank’s commodity analyst Patricia Mohr notes that Uralkali has now cut its rail-price to China by $20/tonne while spot prices for the granular grade in Brazil have dropped by $50/tonne from between $430 and $440; they now range between $380 and $390. “While further price declines are likely over the balance of 2013, we doubt that contract prices to either China or India will fall below the $300/tonne mark,” writes Mohr.

But there is an upside: she believes lower prices could spur potash sales, especially to India which is enduring a record low value of the rupee, although there is a pricing point at which the gain in volume does not offset the price decline.

And Mohr believes we are unlikely to see BHP Billiton get its Jansen project into production until 2020, the delay being the potash price outlook. She says potash prices of at least between $450/tonne and $500/tonne will be needed to justify greenfield investment, including at Jansen.

Looking at the potash market generally, Scotiabank sums up the real issue regarding the decision by Uralkali to go it alone: the Russian company now intends to ramp up production close to capacity and maximise sales by offering low prices, thus — and here’s the kicker — “abandoning supply management”. Just pause and reflect on those three words: “abandoning supply management”! That does not bode well for the market as a whole.

In fact, says the monthly commodities report from the bank, the second half of 2013 could see Uralkali lift output by 33%, the company being able to afford this because it is a low-cost producer near the bottom of the cost curve. Although Mohr doesn’t go on to make the point, this does imply a problem for Belarusian Potash and Canpotex in that it reduces the impact they can have by deciding to underpin prices by — as they have done in the past so successfully, including the first half of this year — lowering mine output to steady market conditions.

POTASH: London brokers Ocean Equities are optimistic about the change of plans at Verde Potash (TSX:NPK). The company, which recently announced delays to the bankable feasibility study in Brazil for a three-stage potassium chloride development, now says it will begin a smaller first-stage operation that will see it produce ThermoPotash, a unique, controlled-release, potassium-based fertilizer.

As Ocean points out, ThermoPotash is not a new product for Verde. The non-chloride product is, they say, well suited to Brazilian soils and climate. Verde has successfully completed extensive research and development; field trials have seen noticeable yield increases in crops normally vulnerable to excessive chloride, including coffee, tobacco, potatoes and pineapple. The Brazilian Ministry of Agriculture in June approved the use of ThermoPotash in the country.

GOLD: If you don’t believe that Asian buyers are taking advantage of the present low prices for the yellow metal, think again.

Here’s an interesting figure from the Australian government’s Bureau of Resources and Energy Economics (BREE): in the June quarter of 2013, Australia’s gold exports to China increased by 21% year-on-year.

And how about this one? China’s share of world gold consumption increased from 5% in 2003 to 19% this year. While China is still second to India in terms of gold consumption, BREE expects that India’s attempts to limit gold imports (because of its foreign exchange problems) could see China become the largest global market.

In The Financial Times this week, reporter Jack Farchy said Asian consumers are grabbing as much as they can of Britain’s gold. U.K. gold exports to Switzerland, the hub of the gold refining industry, hit 798 tonnes in the first six months of 2013 — compared with just 88 tonnes in the same period last year.

As Farchy points out, London is the centre of the global gold market with bankers estimating that about 10,000 tonnes are held in the city’s vaults.

The newspaper reports that Swiss refineries are now operating around the clock to meet demand from Asian buyers. They melt down the 400oz bars from London vaults and reprocess them into the smaller bars favoured by Asian customers.


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