Potash – Demand for this fertiliser is likely to go in only one direction
Potash has nothing to do with pot or cannabis although the FT did suggest that investors were smoking “African pot” when invested in the now de-listed African Potash (AFPO). Its name derives from “pot ash”, which refers to plant ashes in a pot of water.
It’s rich in potassium and other minerals, and is primarily used as a fertiliser for crops.
There are different varieties of potash, but the two most common are Muriate of Potash (MOP) and Sulphate of Potash (SOP).
Muriate of Potash (MOP)
MOP is the most commonly used fertiliser, although it can only be used for certain crops as the high levels of chloride present are toxic to many plants.
Sulphate of Potash (SOP)
SOP is a premium product that can be used on all crops including high value crops such as fruits, nuts and coffee. Whilst SOP is a premium product due to higher mineral content, often less of the product can be used. For example, you would need to use more than twice Sirius’ product compared to Danakali’s, and doing so would also increase Sodium Chloride content to over 6%:
SOP has a ~$270 per tonne premium over MOP due to its low chloride content.
It is possible to convert MOP into a product with low levels of Sodium Chloride using the Mannheim process. Unfortunately this requires energy and cash (about $100 a tonne) and produces large quantities of hydrogen chloride. Hydrogen chloride is highly toxic and skin contact can cause severe burns.
If you believe that world population will increase, then so too will demand for food. As demand for food increases, demand for fertilizer should increase.
If you’re interested in investing in Potash companies you may be interested in:
- Danakali (DNK)
- Emmerson (EML)
- Sirius Minerals (SXX) – hasn’t been covered by cube investments however investors may wish to avoid Sirius Minerals. Its project is highly capital intensive (a multi-billion pound project) with an internal rate of return (IRR) that is likely to be below 20% (the company has not announced a post-tax IRR, but its pre-tax IRR was 26% before recent cost overruns were announced).