A new $500 million potash production plant will increase the overall production capacity to 2.5 million tons per year from two million tons currently, per Nabih Salame, Chairman of the Board of Directors of Jordan-based Arab Potash Company (APC), whose annual sales of roughly $634 million correlates to approximately 4 percent of global potash production, and which sports a nifty ttm ROE of 60% as it targets growth markets at home as well as in China, India and Malaysia.  Potash prices made headlines this summer (and continue to do so as global food prices spike once again) during miner BHP Billiton’s attempted hostile takeover of Canada’s Potash Corporation (a 28% shareholder in APC).  While technically a chemical concoction (consisting of potassium carbonate if not other compounds) used as an agricultural fertilizer (it contains essential plant nutrients), “potash, for all intents and purposes, is food,” according to Vincent Andrews, agriculture analyst for Morgan Stanley.  “Because without potash you are not making corn and soybean and without corn and soybean you are not making chicken or beef and that’s what people want to eat.” 

Spot potash prices ballooned over $1000/metric ton back in 2008 but fell to $300 last summer and have dallied sideways for much of this year around $340-375–buoyed by rumors of declining inventories and then quickly hampered by suggestions that major producers are barely running at half capacity.  Yet per one report, Patricia Mohr, a commodity market specialist at Scotiabank Group in Toronto, noted recently that “some recent sales at higher prices are starting to materialize for the coming months.  Belarusian Potash Co. (BPC) sold some product to Brazil at prices rising to $410 for December delivery, and Canpotex followed suit with December and January deliveries to Brazil in the same price range.  On top of that, demand has strengthened in southeast Asia, allowing Canpotex to sell 150,000 tones of standard and granular product around $405 and $420, respectively. China’s Sinofert also signed a three-year supply agreement with Canopotex for more than 1 million tonnes each year, a sign that China wants to secure longer-term supplies because it believes demand will rise.  This demand could continue to grow.”

Worth noting finally is APC’s competitive advantage in an industry that already has considerable barriers to entry given the expense involved in potash production.  Per NBK Capital, due to the firm’s extraction technique (APC mines surface brine deposits, utilizing solar evaporation, which is significantly cheaper than conventional mining of deep marine deposits) “it remains one of the world’s lowest cost potash producers, enjoying production costs roughly one quarter of producers in Western Europe, for instance.  Moreover, the bank noted, “long term secular drivers” (food/feed/[bio]fuel) underpin its bullish outlook for fertilizer.

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