Belarus

With JPMorgan continually selling, I can't see the DNK share price jumping anytime soon, but in the end, I think there will be a positive outcome for all of us.


In the meantime, a bit of an update below from DNK's new broker in London which is Canaccord Genuity.

I'm guessing there will be a research note to follow that hopefully gets some good distribution.

If SOP prices go on a run due to political tensions in Belarus, the focus could turn on the giant Colluli/DNK.


Colluli, quite simply, is too large to be ignored.

I suspect things are happening behind the scenes to ensure this goes into production in the estimated year 2022.
Whether DNK are still at the helm, remains to be seen.



Belarus production hiatus to potentially deliver a price lift for SOP

Belarus is not a country that many people really knew about until the president claimed a landslide victory in a disputed election a couple of weeks back. However, for anyone watching the potash markets, Belarus is almost as important as either Australia or Brazil to the iron ore markets. Belaruskali was the world’s largest potash producer in 2019 and one of Belarus’ principal sources of foreign currency.

What happens in Belarus matters

Given Belaruskali’s (BPC) capacity and limited domestic demand, BPC is a key exporter to all major downstream markets and can supply up to 25% of annual import requirements for many countries. Additionally, it operates the widest end-market network of any potash exporter and is the sole supplier to a number of global nations. Subsequently, the consequences of a prolonged production disruption at BPC to global MOP supply would be highly significant.

Importantly, the other key global MOP producers are fully committed in the short-term.

• Canpotex has confirmed that it is fully committed - which it defines as allocating its sales volumes along with expected orders – through until the end of October
• K+S said it is also fully committed into October – and expects a lift in demand through to the end of the year; and,
• Uralkali also said it has allocated all of its production volumes for the remainder of the year.

Why is this important for the SOP markets ?

Around 55% of global SOP production is sourced from the secondary conversion of MOP via the Mannheim Process, which means that the availability and pricing of MOP historically had a direct impact on the cost of SOP production and, thus, set a floor price for the final product (cost of MOP plus cost of conversion).

The slide below from the recent SO4 presentation demonstrates the importance of the secondary processing of MOP on the cost curve – it provides a fundamental floor price, which supports terrific margins for the brine producers.



In my view, the production of SOP from brines (particularly in Western Australia – SO4.ASX, AMN.ASX and APC.ASX) will become the key global source of new SOP over the next 20-yrs – followed by more conventional mining of salts from the Danakil basin in Eritrea and Ethiopia (DNK.ASX / DNK.LN). Given investor demand for more environmentally acceptable options, it’s hard to see too much new Mannheim furnaces being built going forward.

Subsequently, all of these names hold genuine strategic appeal in my view.

As a commodity it enjoys a very low level of price volatility, which is of huge appeal to generalist investors. Interestingly, since 2011, the SOP price has remained relatively stable compared to the underlying MOP price, a function of the SOP market essentially being under-supplied, in my view. The global SOP market has grown at a 10 year CAGR of 5.7% compared to MOP with a 10 year CAGR of 2.5%.