From where I sit… A mid-year prognostication

By steve halabura, P.geo., halabura Potash consulting Ltd.

I usually opine about the year gone by, and for the past few years, its been taking the previous years’ opinion, updating some numbers and statistics, and “assignment completed boss!”. However, this year is different – very, very different.

War, hunger, a beautiful but burning world… All these forces have conspired to put not only potash, but fertilizers in general on the front ranks of 21st century geopolitically critical commodities.

Who would have thought that eight months into the year, a war in the Ukraine, real food and energy shortages, and catastrophic droughts would have become cliché? Certainly not me.

Simply put, the placement of up to 15 million tonnes of potash normally supplied by Russian and Belarusian mines is jeopardized. It’s estimated by Nutrien’s CEO, Ken Seitz, that the current shortfall is some eight million tonnes. This is a significant portion of global supply.

What has this done to the normal distribution chain? One great source of information is from the largest free world owner of potash resource – the Province of Saskatchewan. This provides a great window into what is happening globally. (Check it out yourself, here is the link: https://dashboard.saskatchewan. ca/business-economy/business-industry-trade/mineral-sales#by-commodity-tab). Let’s compare the month of June 2021 to June 2022 first. In 2021, mines produced 1,074,048 tonnes, while in June 2022, those same mines produced 1,331,314 tonnes, an increase of 24 per cent. June 2021 sales were $0.58 billion, but in June 2022, they were $2.03 billion, an increase of 253.3 per cent.

Now let’s compare year-to-date production. In 2021, the province’s mines produced 7,360,973 tonnes, however from January to June 2022 those same mines produced 7,693,083 tonnes, an increase of 4.5 per cent. Year-to-date sales were $2.94 billion in 2021, but $8.53 billion in 2022, an increase of 190 per cent.

We can use the above to estimate an average per-tonne realized price. In June 2021, this was $540 per tonne versus a June 2022 price of $1,524. When we look at year-to-date numbers, the average per-tonne realized price for 2021 was $399, however in 2022 it was $1,108. An increase of 360 per cent.

So, yes, an enormous resource windfall to the province and to Saskatchewan potash producers, but this is almost entirely due to price, not increase in production. This begs the question: are the established producers hiking production to meet market shortfalls?

May of 2022 was an information-rich period for potash bugs as four of the big Saskatchewan potash players made known their thoughts (and strategies) on the potash supply-and-demand question. Let’s examine what the word on the street was in May 2022.

In March 2022, Nutrien announced that in response to the uncertainty of potash supply from Eastern Europe it would increase potash production capability to approximately 15 million tonnes in 2022, an increase of nearly one-million tonnes compared to previous expectations, with most of the additional volume to be produced in the second half of the year. Ken Seitz, Nutrien’s president and CEO, said on a May 3 earnings call that “sanctions on Russia and Belarus have the potential to create more lasting changes to global trade patterns as customers prioritize reliability of supply”.

Similarly in May, Mosaic’s president and CEO James O’Rourke offered that reduced supply could extend beyond 2022, opening the door for producers outside Russia and Belarus to consider

boosting output. Mosaic said in May that shortfalls in Russian and Belarusian potash are impossible to replace, adding that “Belarus remains sanctioned and our previous assumption of those tonnes coming back mid-year appears optimistic as most or all of their exports will be curtailed due to logistics”.

Soon to follow was K+S Potash Canada’s (KSPC) announcement of a longterm growth plan, consistent with the