Release today of an outstanding drill result from ELM that is only 21km from proposed coastal port and SP drops! Here is my take on things. I've been bearish re price of coal and esp IO for months. (post something on FMG thread and they want yr head on a spike!) Anyway IO price continues to break new 3yr lows whilst supply continues to rise. Today's cutback by FMG is small-fry compared with additional ore from VALE, RIO and BHP. i can't see how IO price can suddenly rebound to over $100 yet alone $120. But what is happening in Potash. Like IO supply is dominated by a group of major players in 3 countries: Canada, Belarus and Russia. Like IO it's close to a cartel. In last few months, despite price of potash rising, Potash Corp and Mosaic (Canadian) have deliberately cut-back production. Obviously the companies are rich and can afford to do so... and their only motive (that i can see) is to keep Potash price high. It's crucial to bear in mind the different methods of production. IO lies on the surface. huge machines scoop it into trucks, then into train wagons, then it's conveyed into bulk carriers waiting in port. Very little benefication is required. But most potash is mined at 1000-1400metres below surface. Using 'solution-extraction' the potash is dissolved and pumped to surface. It's not hellish expensive of high-tech, but certainly a far cry from simply scooping into a truck. The relevence is this: IO suply can be ramped-up very quickly. The main constraint is space at ports, or in some cases a new railway line is required. Obviously, the latter take considerable time. If both commoditoies are in over-supply... why have IO mines doubled production and Potash producers leveelled-off and even reduced production. IMO it's all about CONFIDENCE. IO mines fear that unless they rapidly boost supply their rivals will get in before them. Potash producers know their rivals will be very hard-pressed to quickly increase supply. So cartel-like... the majors cut-back knowing there are no potential newcomers on virtually any horizon. These fertiliser giants are greedy. They want Potash price well-above $500 and preferably at/over $600/ton.... and they feel confident they will mauintain/even increase this price. Here is why. In 2008 shortage of grain (esp rice) saw prices soar rapidly. Big food shortages saw riots in places like philipinnes, Thailand etc. Govts rushed to buy what grain was available, and farmers rushed to buy fertiliser. Within 12 months price of fertilizer collapsed to below a 3rd of its peak. My understanding is this: Worldwide (but esp 3rd world) farmers planted a crop in 2008/2009 but (because the price of fert was so high) used only Nitrogen, forsakeing Phosphate and Potash. Being less leeceable the latter nutrients are still available from previous crop. But one can only go 2 years maximum without compound fert before yields drop dramataically. Guess what.... we know have a grain shortage dwarfing that of 4 years ago. Its def partially due to drought but nutrient shortage plays a significant role. We know have the crazy situation where: 1) Serious food shortage possibly/probably lasting years. 2) High and rising food prices. 3) Only average demand in fertiliser. 4) But good prices for fertiliser.
How can we have a severe food crisis combined with avaerage demand for fert?? ESPECIALLY if soils are nutrient deficient? it's because world-wide farmers are under-paid and deep in debt. It's become difficult for growers in many countries to get credit to buy inputs. farmers in India etc plant a crop more in hope than anything, as they know the soil lacks vital nutrient. So how will this affect Potash?
My forecast is: Mass hunger, perhaps famine, will see govts across the globe intervene and subsidise farmers. Govts will either supply fert or give farmers credit to buy fert. This will cause a rapid spike in demand and fert producers will not be able to match it. But they don't care.... because the only outcome is a rise in price for fert that IS available. Sure the big-boys in canada will return to higher levels of production.... but not enough to compensate for the increased demand. And there is simply ONOBODY else to get this stuff from. It could hardly be more different from IO. Hungry populations with little hope of employment make govts nervous. World pop grows by 250,000 each day, every day!! Fert is not a discresionary item. The future for ELM is very bright. As one poster has noted: It's shaping-up to be the best major Potash discovery in history. And just at a time when demand is due to soar. i'm buying these dips. Inconceivable VALE, BHP, Potash Corp et al don't read the announcements from ELM. "21kms from a port and richest grade ever". speaks for itself imo. Plus it's a wide seam only one-third the depths of current producers. I'm too tired to do a spellcheck. dyor. PPS. here are some articles re Potash. One is very dated but demonstrates scene from 2008.
