Let’s start with some context. According to The World Population Prospects 2019 report the world’s population is expected to increase by 2 billion persons in the next 30 years, from 7.7 billion currently to 9.7 billion in 2050. As the number of humans on the Earth continues to grow, it is becoming more and more important for farmers to efficiently use their land to feed the growing number of people around the world.
That’s where potassium (or “potash”) fertilisers come into play given the importance they have for increasing of the crop yield. Potash or Potassium (K) is the seventh most common naturally-occurring element in nature, and it is one of the three main macronutrients required for plants (other two being Nitrogen and Phosphorus). Potassium is crucial for the function of all living cells, aids in energy metabolism and is an important agent in the plant growth process. Plant benefits include activating enzyme functions, processing vitamins, guarding against drought and disease and improving the nutrient quality of the crop
The main use for potash is as an agricultural fertiliser, providing a source of potassium to crops. This is a fundamentally important long-term application given that potash has a major role to play in satiating the need for increased crop production whilst making more efficient use of dwindling arable land via increased yields. Now here comes the important part – not all potash fertilisers are the same or used in the same manner, and for investors interested in the global potash fertilizers market, it’s important to understand the difference.
It`s all about the anions
The most common potash fertilisers are sulphate of potash (SOP), or potassium sulphate, and muriate of potash (MOP) or potassium chloride. The biggest differences between MOP and SOP are from the anion accompanying the potassium. Both of them have specific uses, determined by the chemistry of these salts, their behaviour in soils, and the nutrients supplied in addition to potassium. While MOP supplies chloride, the ionic form of the element chlorine, the SOP supplies plant-available SU. Both MOP and SOP contain a high potassium percentage (60 or 62 percent as K2O for MOP and 50 percent K2O for SOP). The potassium in both fertilizers is in the same potassium form, and both salts are water soluble.
Although this might not seem important, this is exactly what makes all of the difference. Many types of fruit and vegetable crops can also be affected by overexposure to chloride, particularly when grown in intensive conditions. Chloride ions, unlike potassium ions, are highly mobile in the soil and under most conditions are easily washed away by rainfall or irrigation treatment. Chloride competes with other anions, such as nitrate, phosphate and sulphate, for absorption into the soil. This may be problematic depending on the nutrient content of the soil and the mix of fertilisers used. In areas with little rainfall and/or poor drainage, chloride can accumulate in the soil, resulting in symptoms of chloride toxicity in crops that would not otherwise be harmed by application of potassium chloride. In addition, application of potassium chloride to soils with high native salt content should be avoided in order to prevent harm to the crops.
The salty kind…
Potassium chloride is the most commonly used potassium fertilizer and can be used to farm a variety of foods, particularly chloride-loving vegetables like sugar beets, celery, Swiss chard and other plants that are resilient to chloride. Its chloride content can be beneficial for soils that are low in chloride, making them more disease resistant. However, if the soil or irrigation water being used has high levels of chloride, the added content can create toxicity. This means that the levels have to be carefully managed, and MOP must only be used for select crops.
The MOP fertiliser prices spiked in 2007-2008 due to an imbalance between supply and rapidly expanding demand, especially in Asia. Demand in China and India particularly exceeded a level that supply could match and the reserves reached historical lows. The shortage of MOP pushed prices to record highs of over US$1000/mt. Further exaggerating the situation was the collapse of the global credit market, a trade recession, and slowdown in world economic growth. Demand destruction for MOP was in full effect as farmers either refused or were unable to pay the high prices. Stocks accumulated and demand was reduced.
However, the MOP remains the most commonly used potash fertiliser, with about 67 million tonnes being sold and used annually. Having said that, an issue with the popularity of MOP is that in recent years production has overcome demand, resulting in lower-than-desired prices for the product. Although the MOP fertiliser market improved moderately in early 2020, the share prices are is still far from their peak in 2009.
And the premium kind…
Potassium sulfate, also known as sulphate of potash, is considered a premium-quality potash. It contains two key nutrients for growing crops: potassium and sulfur. Using SOP both improves quality and crop yields and makes plants more resilient to drought, insects, frost and even various diseases. Some studies have found SOP is capable of improving the look and taste of foods and boosting a plant’s ability to absorb essential nutrients like phosphorus and iron. SOP is, by and large, used on high-value crops like fruits, vegetables, tea, coffee, nuts and tobacco. It works better on crops that are sensitive to chloride, which can be toxic to some vegetable and fruit plants.
In addition to potassium, potassium sulfate also provides plant-available sulfur. Sulfur deficiencies have become increasingly common in recent years, making products that include the secondary nutrient increasingly desirable. Finally, unlike MOP, SOP can be certified for use in organic agriculture, but only in cases where SOP was not produced synthetically. The SOP therefore comes at a higher price than MOP and is also in higher demand, as there is an inability to economically expand supply through existing production processes. That means that there is a deep need for more SOP production in order to meet supply shortfalls.
Instead of conclusion
Although the underlying demand drivers for the different potash types are effectively the same, the supply side of the supply-demand equation is fundamentally different. Differences in the mineral form of potassium, size and number of economic resources, and processing methods result in differentiated cost structures which manifest as product price differentials. The key reasons for SOP’s price premium over MOP can be attributed to higher MOP production costs, and the fact that the primary production is insufficient to satisfy market demand and secondary production is needed.
As the global population grows, arable land per capita continues to decrease, and the shifting dietary preferences of a more affluent population increase demand for higher value crops crop production must intensify and yields must increase to meet growing food requirements. The SOP has the most room to grow of all the major crop nutrients as global fertilizer producers seek to improve margins through value-added products that suit changing food production and consumption practices. With a limited amount of additional SOP capacity currently under development and a severe supply imbalance there is a significant gap representative of an opportunity for new source of primary capacity to fill the market imbalance.