China and Saskatchewan eager to expand to new Potash Frontiers
Potash & Phosphate Month in Review: The ProEdgeWire Potash and Phosphate Sponsor index fell 7.5% over the course of March. The potash sector in general was characterized by two major and inter-related developments. The first is the threat of labor action at IC Chemicals over the proposed PotashCorp (NYSE: POT) takeover bid. The bid highlights PotashCorp’s plans to pursue growth beyond North America, fearing that that market may be heading toward over saturation. In response, Mosaic Co (NYSE: MOS) has objected to the plan. The Israeli government, however, has experienced increasing pressure from workers, who undertook labor actions, not to approve the sale. A rejection would lead PotashCorp seeking for alternative projects in the general region – which would include projects in Eastern Africa or the Middle East, facilitating access to the Company’s two key markets of India and China.
PotashCorp will be emerging from a period of intense investment in infrastructure aimed at increasing storage and production capacity; now, it wants to expand. Based on Mosaic’s good quarterly financials, PotashCorp’s are expected to be good as well. This shall encourage the potash giant to remain on the lookout for active properties and emerging projects beyond North America in the months ahead. One property of interest might be Allana Potash (TSX: AAA | OTCQX: ALLRF), which filed a 43-101 technical report, based on the production of one million tons of potash (MOP) a year for its Danakil solution mining Potash Project in northern Ethiopia.
There may be some slight downward pressure on potash prices themselves, meanwhile, as the Chicago Mercantile Exchange (CME) issued a bearish report for corn and soybean crops. The more bullish reports – based on droughts in North and South America – from last year helped sustain higher potash prices, as the high crop prices encouraged farmers to plant more. The CME predicts that corn stocks may increase, pushing other commodities lower as well. Nevertheless, in the mid term there may be revisions give that the weather conditions for the 2012 season remained bad throughout and farmers may still end up maximizing their sowing, which should eventually restore balance to the mineral fertilizer market as well. Such was the demand for corn in 2012 that the United States was even negotiating imports from Brazil and Argentina. Yet crop and seed prices would have had difficulty going higher, given that they have already reached almost record levels.
This phenomenon has been one of the drivers of the potash and phosphate market in South America, which is slated to be a key growth area for these commodities. Brazil imports up to 90% of its potash and about half its phosphate from producers in Canada and Africa. The indefinite suspension of Vale SA’s Rio Horizonte project in Argentina last month has intensified the region’s demand while fueling speculation about who might be ready to pick up where Vale has left off. Brazil’s demand for potash should benefit Aguia Resources Limited (Aguia, ASX: AGR), which announced excellent phosphate drilling results from its Tres Estradas project (“TE”) in southern Brazil.
Meanwhile, China, whose appetite for commodities remains healthy, is considering securing its potash supplies by investing directly at the source. In March, it was reported that Yanzhou Coal Mining Co could be listing its potash holdings at the Toronto Stock Exchange after purchasing potash exploration permits in Saskatchewan able to produce a projected 39.7 billion tons of potash. The plan may be a strategic move to put pressure on the Canpotex cartel majors (including Agrium Inc, Potash Corp and Mosaic) and partly explains why PotashCorp is so keen on looking for growth alternatives beyond North America.
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