When talking about market developments of potash fertilisers, any prospective investor should also note that two main kinds – Muriate of Potash (MOP) and Sulphate of Potash (SOP) – tell very different stories regarding their respective prices. Again, the critical difference boils down primarily to their varying chloride content. The most common reason for opting for an alternative to chloride-containing MOP is to limit the application of chloride.
Most crops have some degree of sensitivity to chloride, which can have detrimental effects on leaf and fruit quality. Some crops are more susceptible than others, but in most instances, the need to avoid chloride is less clear cut and is down to the grower’s choice. Chloride-free potash fertilisers are consumed in premium agriculture, which broadly includes all crops other than cereals and oilseeds. This means that SOP is generally applied to crops with better margins such as coffee, cocoa and citrus fruits. When considering cash crops, the incremental cost of a higher value fertiliser is offset by a higher price being received. For that reason, farmers are primarily inclined to apply premium chloride-free potash instead of regular potash.
Not only the chloride…
Potassium sulphate is also a source of sulphur, which also has some critical functions in plants, including the formation of chlorophyll that permits photosynthesis and protein production. Essentially, sulphur content in fertiliser also contributes to increased crop yields and improves quality, both of which determine the market price a farmer would get for his products. Finally, SOP also provides an additional advantage by having favourable solubility characteristics which in turn means it can be used for fertiliser application in which fertiliser is incorporated within the irrigation water by the drip system.
This is why the SOP prices are elevated over the past five years, in contrast to global MOP prices, which fell to decade-lows in late 2016. As MOP prices deteriorated in 2013, SOP prices were remarkably resilient due to limited supply (caused by operational issues with existing suppliers and failed capacity expansions). As a result, the premium soared and has remained above US$200/t on average for the past five years. Pricing is mostly isolated from the MOP market, and price behaviour is remarkably steady over the past decade, tracking between $US45 and $US600 a, with average annual price variance of just 4%. Such stability wasn’t significantly undermined by the onset of the coronavirus and depressed MOP prices – for example, on annualised basis, Northwest European SOP prices declined by 1.8% year on year, thus making SOP of the more stable soft commodities.
The SOP premium relative to MOP largely determines the operator’s margin and is, therefore, a most important economic consideration. The SOP can either be based on the extraction and processing of minerals from naturally occurring ores or brines (primary production), or the chemical conversion of potassium chloride (secondary production). The latter sets the marginal cost of production and floor to SOP premiums. Although additional cost of converting MOP to SOP could be estimated approximately at S$100/t, this amount considered a realistic floor to SOP premiums was pushed up due to a constrained SOP market.
The premium remains stable due to secondary production cost, limited SOP supply expansion and robust and growing SOP demand which is driven by steady increase in arable area is used for chloride intolerant crops which currently constitutes around 20% of the world’s arable area. This trend means that like in the lithium market, is a bifurcation in pricing with potash customers being willing to pay a premium price for a premium product.