MOOSE JAW, Saskatchewan (Reuters) - Europe’s top potash supplier, Germany’s K+S AG (SDFGn.DE), is unlikely to join the Canadian export consortium Canpotex once it opens its Saskatchewan potash mine, but will follow that company’s practice of moderating production to support prices, chairman Norbert Steiner said in an interview with Reuters.
K+S broke ground on Tuesday northwest of Regina, Saskatchewan on a C$3.25 billion ($3.16 billion) mine that will eventually produce 2.86 million tons annually of the crop nutrient, with first production set for late 2015.
K+S is bound by European anti-trust laws that make it unlikely to join Canpotex, which is jointly owned by No. 1 global fertilizer maker, Potash Corporation of Saskatchewan (POT.TO) (POT.N), Mosaic Co (MOS.N) and Agrium Inc (AGU.TO) (AGU.N), Steiner said.
“I‘m really skeptical that we will be getting the allowance from the European anti-trust authorities to step into that,” Steiner said in the small Canadian Prairie city of Moose Jaw, Saskatchewan, shortly after he turned the first shovel of hard, wet ground at K+S’ rural mine site.
K+S, which is also the world’s biggest salt producer, plans to ramp up to annual production of 2.86 million tons of potash from the Saskatchewan mine by 2023, with the first production expected in late 2015. It already produces between 7 million and 7.5 million tons of potash and potash specialty fertilizers annually from its German mines.
But even though it doesn’t see a future with Canpotex, K+S has no appetite to chase market share by overproducing at the expense of price, and intends to gauge when to add further phases of construction by market conditions, Steiner said.
“Volume before price policy would be less successful,” he said. “The established participants know how to do the business and we have no reason to deviate from that.”
The K+S mine will become Western Canada’s first new potash mine in nearly 40 years, barring delays. K+S could eventually expand the Saskatchewan mine to 4 million tons of capacity.
The demand outlook for potash, a mineral produced mainly in Saskatchewan and Russia/Belarus, hinges on population growth in China and India and greater demand for meat in those countries as incomes improve. Potash suppliers have also benefited from the growing production of biofuels from corn, an intensive user of fertilizer.
Saskatchewan is home to nearly half of the world’s potash reserves.
With the Saskatchewan mine, K+S would gain a launchpoint into the United States, the world’s top corn producer, and greater sales opportunities to China, India and Brazil, offering an alternative supply to the export consortiums of Canpotex and Belarussian Potash Company, Steiner said.
“There are some positive aspects that we are not bound by such an organization.”
Where its potash ends up, however, depends on what the global market looks like once the mine opens, Steiner said, adding the company has no set sales targets for each country.
More competition may be coming to Saskatchewan hot on K+S’ heels.
BHP Billiton (BLT.L), the biggest global miner, has started work on what would become the world’s biggest potash mine, near Jansen, Saskatchewan, while Vale SA (VALE5.SA) and Rio Tinto PLC (RIO.L) own reserves elsewhere in the province.
Junior mining companies such as Western Potash WPX.TO, Encanto Potash Corp EPO.V and Karnalyte Resources KRN.TO, who own reserves in Saskatchewan, but are not yet producing potash, are looking for investors. Steiner doubts they’ll find takers anytime soon.
“Everyone who is fresh and new to the market needs to ask themselves, ‘Is there still room for me?’ Maybe after 2020 things change, but for the time being, there is realistically no need for more capacity here in Saskatchewan once we are there, and maybe also BHP.”
Reporting by Rod Nickel in Moose Jaw, Saskatchewan; editing by Carol Bishopric