Market and product
New potash capacity needed 'around 2020'
The mining giant - whose prospective entry into potash in earnest through its Canada-based Jansen project is viewed as a key determinant in the industry's future – told investors that capacity for producing the fertilizer exceeded demand, and was likely to remain so over the current decade as a whole.
"On the supply side, the market is clearly in over-supply, and is likely to remain so for the foreseeable future," said Mike Henry, the president of BHP marketing and technology.
While potash demand rebounded 7% last year, and is expected to recover 9% to 58m tonnes in 2014, and keep rising, capacity is growing too.
Many existing groups, such as Russia's Uralkali, are expanding existing capacity, while new mines are in the world from the likes of German-based K+S, in Canada, Eurochem in Russia, and IC Potash in the US.
'New will be required'
"However, the current suite of brownfield expansions represents the last of the low-hanging fruit," Mr Henry told investors.
"Many of these mines have now reached the limits of shaft or ventilation capacity, and new potash capacity will be required to meet demand around the end of the decade."
Indeed, from 2021-2030, overall demand - rising by 2-3% a year, led by Asia and the US - should, on paper, exceed supply.
The shortfall means that "greenfield projects, like Jansen, will be very well placed to compete", Mr Henry said.
With potash groups already having undertaken the easy – and cheap - capacity expansion at existing mines by then, so-called brownfield expansion, and further growth at these sites "will be more akin to greenfield expansions because they will require new shafts and associated infrastructure".
Jansen-watching
The comments, at an investor day on Monday, come as investors are attempting to gauge when BHP might bring Jansen online, having in February cut by some 25% ongoing spending on the project – which Citigroup estimates may cost $16bn to develop.
Current spending amounts to some $500m a year, which is expected to see a mine shaft completed by the end of 2017.
However, "with a potash market deficit not anticipated until 2021 we are not clear on when BHP may take the project into the post-shaft development stage," Credit Suisse analysts.
Indeed, BHP's board has yet to give Jansen its final approval.
Credit Suisse, restating a "neutral" rating on BHP shares, with a target price of 2000p, added that potash "received more attention than we anticipated" at the investor day.
'There will be excess capacity'
But another market watcher took a more downbeat view of prospects, saying that on his estimates, there would be excess capacity in the sector for at least a decade, even assuming Jansen does not come onstream.
"Even in 2025, there will be excess capacity," the analyst told Agrimoney.com.
Some observers flag the potential for projects such as an Allana Potash development in Ethiopia, and a Mag Minerals side in Africa, beside Vale's Sergipe scheme in Brazil.
And Societe Generale has flagged the potential for Laos to revive schemes mothballed in 2012 thanks to environmental concerns.
"As per industry sources, Laos's potash capacity is likely to increase from a current 650,000 to about 5.0m tonnes during the next 10 years with the help of Chinese investments," SocGen said in a recent note.
China is the top potash importer.
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