Colluli set to be a global game-changer

A future-facing commodity

Potash (a term often interchanged for potassium) is a cornerstone nutrient for the agriculture industry. It is needed to help plants grow strong and thrive, resulting in better yielding and more consistent crops. Potash sits at the intersection of global demographic, social and environmental megatrends. 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 critical for farmers to efficiently use their land to feed the growing number of people worldwide. That means potash growth is underpinned by strong demand drivers, including a growing population, reduction in arable land and changing dietary preferences.

Main types of Potash

Commonly, Potash refers to Potassium Chloride or Muriate of Potash (MOP). However, several other potash variants exist with premium potash types containing micronutrients and macronutrients such as potassium sulphate, potassium magnesium sulphate and potassium nitrate. For investors interested in the global potash fertilisers market, it’s essential to understand the difference between SOP and MOP.

SOP: The premium potash fertiliser

SOP is considered a premium-quality potash fertiliser. It contains two critical nutrients for growing crops: potassium and sulphur. Using SOP improves quality and crop yields and makes plants more resilient to drought, insects, frost and even various diseases. Some studies have found SOP can improve the look and taste of foods and boost a plant’s ability to absorb essential nutrients like phosphorus and iron. The SOP is the principal alternative potash fertiliser when the presence of chloride is undesirable. That is most often due to the cultivation of crops that are sensitive to chloride, which broadly includes all crops other than cereals and oilseeds.

Around a fifth of the world’s arable area is used for chloride intolerant crops (either chloride hating or chloride sensitive). Over the past five years (2015-20), chloride intolerant crop area has grown at a CAGR of 2.1%, compared to 0.9% for other crops, providing support for SOP consumption.

SOP comes at a higher price than MOP as the majority of the world’s SOP is produced using the Mannheim process which uses MOP and sulphuric acid as the inputs.  There is a natural constraint to expand supply through the existing secondary production processes economically and new project that intend to produce SOP by primary methods take years and hundreds of millions to establish. The supply side constrain indicates there is a market need to increase SOP production to meet supply shortfalls.

The SOP prices are remarkably resilient due to the fact that most SOP is produced by the Mannheim process which have 87% of their inputs cost tied to MOP and sulphuric acid with the balance of their costs tied to power and other operational costs.  As a result, the SOP price premium over MOP has remained at above US$220/t on average for the past ten years.

SOP pricing is generally closely tied to the MOP price market, and price behaviour is remarkably steady over the past decade.

As the global population grows, arable land per capita decreases, 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. SOP demand has the potential to grow significantly and provide the major crop nutrients in high growth areas. Moreover, global fertiliser producers are seeking ways 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 supply imbalance, there is a significant gap representing an opportunity for a new source of primary capacity to fill the market imbalance.

Importantly, SOP is currently underapplied in the areas expecting the highest rates of population growth, the majority of which are proximate to Colluli.

Potentially world’s first zero-carbon SOP

Danakali is determined to embrace renewable energy and run its production plant in a way that delivers positive environmental impacts. The early assessment work on the solar and wind energy potential of Colluli has been completed, and this has confirmed that both of these renewable energy sources can be incorporated into the future generation of power for the Project. Danakali continues to evaluate its renewable energy options of solar, wind and geothermal energy, intending to become a world-first zero-carbon SOP producer.

The SOP can be produced either from natural resources (primary producers) or through chemical conversion of MOP, known as the Mannheim process (secondary production). Transitioning Colluli to zero-carbon production would allow it to displace all carbon-intensive Mannheim SOP production globally

Climate-related concerns have been reflected in Colluli design. To that end, the Water Intake Treatment Area (WITA) was redesigned to allow the use of filtered seawater in the SOP processing plant at the Colluli mine site. That allowed Colluli to decrease our environmental and climate impact early on.

SOP is vital for climate-smart agriculture

Under optimistic lower-end projections of temperature rise, climate change may reduce crop yields by 10 to 20 per cent, while the increased incidence of droughts and floods may lead to a sharp increase in prices of some of the leading food crops by the 2050s. Towards 2050, rising population and incomes are expected to call for 70 per cent more food production globally and up to 100 per cent more in developing countries, relative to 2009 levels. Yet, the distribution of land and water resources does not favour those countries that need to produce more in the future: the average availability of cultivated land per capita in low-income countries is less than half that of high-income countries. The most considerable contribution to increasing the agricultural output will most likely imply production intensification on existing agricultural land. That will require the widespread adoption of sustainable land management practices, including climate-smart fertilisers such as SOP. Besides allowing more efficient water use, the SOP also enables farmers to increase their yield while increasing plant resilience from various abiotic stresses such as soil salinity, droughts, high and low temperatures, and pests.