Canada's potash industry could be in for a rocky few years as supply and demand are unlikely to move up and down in unison over the next decade, a report said Tuesday.
Research firm DBRS Ltd. said potash companies are likely to see strong demand over the long term, but profitability may not follow a straight line higher.
Potash is the common name for a variety of water-soluble mineral salts that provide potassium to agricultural crops. It's become one of the world's most sough-after fertilizers due to its ability to increase yields, or, the amount of food produced per acre. Spot prices for potash have more than doubled since 2007.
The potash craze has gotten so feverish that PotashCorp of Saskatchewan — the world's largest supplier — was briefly the most valuable company in Canada last year. (Australia-based BHP Billiton tried to take over PotashCorp in 2010 for $40 billion, but was ultimately unsuccessful as Ottawa rejected the bid as not being of net benefit to Canada.)
Global factors are underpinning the trend. The world's population is growing, and economic growth is fast creating wealthier populations in the developing world, DBRS noted.
"The better off people are, the better they eat," mining analyst Ernie Lalonde said.
Demographic factors are likely to keep potash demand strong, the report said, but the supply side of the ledger could be prone to upheaval as more sources come online.
"New market entrants and increased potash production capacity could lead to swings in industry profitability over the next several years," Lalonde said.
Huge increases in potash prices have other producers scrambling to bring new potash mines to market. It's estimated that world potash production is currently less than 0.3 per cent of the planet's actual reserves. As many new mines start production it could create a supply glut, which in turn could make prices yo-yo.
"If the market structure of the industry changes and margins are driven down, the ratings of producers largely reliant on their potash businesses could be negatively impacted," DBRS warns.
Even with no new players, Canada's two largest potash firms, PotashCorp and Agrium Inc. are already forecast to rapidly increase production over the coming decade. PotashCorp plans to almost double its production to 17 million tonnes by 2015.
"Potash demand can be expected to continue to grow, but it will take appropriate timing, market discipline and perhaps a bit of luck to keep markets in balance," Lalonde said.

Here is a quick peak at some noteworthy Saskatchewan expansions and start ups. 
Agrium- will increase annual production to 3 million tonnes from 1.8 million tonnes.  Expansion to start in 2012 and end in 2014.
BHP Billiton- Jansen mine will annually produce up to 8 million tonnes starting in 2015
Mosiac- Mosaic is one of the largest potash producers in the world with 10.4 million tonnes in capacity and an expected capacity of approximately 17 million tonnes following completion of several expansion projects by 2020.
K+S Potash- Legacy Mine Start of production and first volumes expected in 2015.  $3.25 billion expected to be spent.
Western Potash -Will start construction in 2013, with production starting in 2016.  Will have annual production of 2.8 million tonnes. 
Vale- Will decide in 2012 if they will go ahead with a 2.9 million ton annual production mine in Saskatchewan.  Would cost near $3 billion.
Rio Tinto, North Atlantic - Have signed a deal for Potash.  This is in the development stage.


Here is a link to Potash Corp expansions.
Allan- Between 2005-2012, $760 million will be spent on expansion.  More than 95% complete.  Will increase annual production by 1.3 million tonnes to 2.7 million tonnes
Cory-Between 2007-2012, $1.55 billion will be spent on expansion.  More than 95% complete. Will increase annual production by almost 2 million tonnes to 2.7 million tonnes.
Lanigan- between 2005-2008, $410 million was spent on expansion. Completed. Annual production is 3.6 million tonnes.
Patience Lake- Between 2007-2009, $110 million was spent on expansion. Annual production is 600,000 tonnes.
Rocanville_ Between 2003-2005, $130 million was spent on expansion. Between 2007-2014, $2.8 billion will be spent on expansion.  Almost half has been done ( $1.3 billion).  Annual production is 2.8 million tonnes.  After ramp up, annual production will be 5.7 million tonnes.
New Brunswich- Between 2007-2013, $1.7 billion will be spent on expansion.  To date, $1.3 billion has been spent.  Annual production is 800,000 tonnes, after ramp up, it is expected to be 1.8 million tonnes.

By 2020, potash production from these companies listed above, will be over 50 million tonnes if all these potash producers are at peak production and the Jansen, Rio, Vale mines go ahead.  This is up from about 20 million tonnes in 2005.

Here is how potash prices have done over the last couple of decades.


A definite bubble hit in 2007-2009.  And prices right now might prove to be at the high side as well.  There will be a pile of supply coming on line in the next few years just in Saskatchewan and I have not even mentioned all future start ups and expansions from around the world.  When I get a chance I will.

While we all know that many of Saskatchewan potash producers are suspending production for a couple of months at the start of 2012 due to a lack of demand, I'm still bullish on potash in the long term, but unless another and bigger "flight to commodities" happens ( aka commodity bubble), I don't see 2008 prices happening anytime soon.