The vital fertilizer that’s driving multibillion-dollar bets

The fertilizer is part of mining giant BHP’s shift toward commodities of the future as it exits fossil fuels, though production won’t start for another six years. For now, much of the focus will be on how U.S. sanctions on Belarus’s state-owned producer affect supply.

Here’s why potash is important and what’s driving the market:

Market rally

Grains output jumped about 25% in almost a decade on rising global food demand, while a crop rally in the past year encouraged farmers to expand planting and use more fertilizers. That’s seen spot potash prices in Brazil and the U.S. hit the highest in at least eight years.

Nutrien Ltd., the biggest fertilizer company, earlier this year said it will raise potash production amid a tightening market. Last week, the Canadian company revised its forecast for global potash shipments to a record on strong demand.

Miners join party

BHP on Tuesday finally approved spending on the Jansen potash mine in Canada, after years of wavering over the huge cost. Potash offers the world’s top mining company a long-term future profit driver as it retreats from fossil fuels and focuses on commodities that should benefit from rising populations or the green-energy transition.

Jansen could operate for a century, and is a scalable business that could grow to rival BHP’s Pilbara iron ore operations and its copper mines in Chile in importance, Ragnar Udd, president of BHP’s Minerals Americas business, said on a media call on Wednesday. BHP isn’t the only miner moving into fertilizers — Anglo American Plc took over a $4 billion U.K. mine in 2020 as it shifts from coal to more environmentally-friendly commodities.

There are other big projects in the works. Russia’s Acron Group is speeding up construction of Talitsky potash mine and targets the first supplies in 2025. In Belarus, Slavkali plans to start a 2 million tons-a-year mine in 2023.

Supply uncertainty

Output is mostly concentrated in North America and former Soviet nations like Russia and Belarus, from underground deposits formed by evaporated sea beds millions of years ago. Nutrien, Mosaic Co., Belaruskali OAO and Uralkali PJSC are among the main producers.

The U.S. last week sanctioned Belaruskali as it targeted companies with ties to President Alexander Lukashenko, though it’s not clear how that will affect supply. Counterparts have until December to wind down transactions with Belaruskali, while Belarusian Potash Co., which handles all of the country’s potash exports, wasn’t itself sanctioned.

Still, BPC told RIA Novosti the sanctions will lead to higher potash prices and less availability on the world market.

Potash trade

Unlike say crude, copper or wheat, benchmark prices are largely derived from annual deals between producers and buyers, rather than on a futures exchange. The nutrient is also traded in spot markets.

Prices at multiyear highs “revived projects like Jensen or Talitsky in Russia, even as the market is still in oversupply,” said VTB Capital analyst Elena Sakhnova. “It’s not clear how long potash price dynamics will sustain, as it is driven by speculative factors and uncertainty over Belarusian shipments.”

BHP’s Udd said he was confident the market could absorb the extra supply from Jansen, with first production targeted for 2027. “The feedback we’re getting from customers at this point is that they will really relish the competition this will induce in the market.”

(By Nicholas Larkin, Thomas Biesheuvel and Yuliya Fedorinova, with assistance from James Thornhill)