VINACHEM

As the world’s population continues to grow at a rapid rate, it’s becoming more and more important to find ways to grow food more efficiently.

That’s the story often pointed to by potash producers, as the mineral is a key fertilizer for many crops. However, investors who previously haven’t heard of the space might be wondering, what is potash? Here’s a brief introduction to what exactly potash is, for those new to investing in the space.

What is potash?

Potash includes various mined and manufactured salts containing potassium, most often for use as plant fertilizers. Prior to the industrial era, potash was derived from soaking wood ashes in a pot, thus the term “pot-ash.”

Today, most of the world’s potash comes from salts left over from ancient evaporated seas, which now lie underground. Canada is the world’s top producer of potash, and also holds the largest reserves. Other top producers include Russia, China and Belarus.

Potash fertilizers help encourage water retention in plants, increase yields, improve taste and help plants resist disease. According to the Potash Development Association (PDA), potash levels must be maintained in plant soil in order to ensure healthy plant growth. “In fact, potash makes a positive contribution to the environment by balancing other nutrients, especially nitrate, to make sure they are taken-up and used by plants efficiently so avoiding losses which might be harmful,” the association states.

The PDA also states that there are no environmental risks associated with the use of potash as a fertilizer.

Different types of potash

When asking, “what is potash?” it’s important to note that there are a number of different types of the mineral. The two most common potash fertilizers are sulfate of potash (SOP) and muriate of potash (MOP).

MOP is the more commonly used fertilizer of the two, often used for chloride-loving vegetables like sugar beets, celery and Swiss chard. The use of MOP must be managed carefully; if the soil or irrigation water being used has high levels of chloride, the added content can create toxicity.

Conversely, SOP is better for crops that are more sensitive to chloride. It is most commonly used on high-value crops like fruits, vegetables, nuts, tea, coffee and tobacco, and is considered a premium-quality potash. Not only does SOP improve plant quality and crop yields, but the mineral also makes plants more resilient to drought, frost, insects and disease.

PotashCorp is the largest MOP producer in Canada. However, a number of juniors are looking to break into the space as well, including Western Potash (TSX:WPX) and Gensource Potash (TSXV:GSP). Examples of junior potash companies targeting the production of SOP include Danakali (ASX:DNK), which is developing its Colluli project in Eritrea, and Potash Ridge , which is advancing its Blawn Mountain project in Utah.

Other forms of the mineral include caustic potash or potash lye (potassium hydroxide), and potassium chlorate, both used in industrial applications.

The potash market

A group of potash producers including Russia’s Uralkali and Belarusian Potash Company largely controlled potash prices until the summer of 2013, when Uralkali terminated that relationship. The collapse of the European potash cartel shook the market, sending potash prices down by 25 percent and creating an environment in which sellers could more readily offload their product.

Producers haven’t cut back production, putting the market in oversupply and keeping prices down. Looking ahead to 2016, potash prices are expected to remain under downward pressure for the forseeable future. However, Paul Donaldson, CEO of Danakali, told the Investing News Network that he expects the SOP price to perform better than the MOP price in 2016.

“Despite the weakened MOP prices, SOP prices not only will remain strong, but will also maintain a premium over MOP,” he said. “Secondly, newly commissioned capacity for potash will be absorbed into the market over the coming years and there will be a price recovery.”