Price fluctuations

Potash is one of Saskatchewan’s —and the world’s — most important minerals and, because of this, people watch carefully when the price fluctuates. Doug Elliott, the publisher of Sask Trends Monitor explained that, as with all commodities, the price of potash is a function of supply and demand. If there is an excess of demand or a shortage of supply, the prices go up. The reverse is true as well — if demand falls off or the supply increases, prices will fall. Unlike most other minerals, potash is sold through several groups (known as marketing agencies or cartels) that try to manage supply and demand thereby controlling the price. “These [cartels] that try to manage the price have only some success,” said Elliott.

The long-term outlook for potash is positive. “The population of the world is growing and potash is important as a fertilizer to help grow more food for the expanding population. This will increase demand and help keep the prices high,” Elliott said. In terms of the short term, Elliott expects to see the price for potash to turn downward possibly to as low as $300 per tonne by the spring. He explained this could happen because of the recent collapse of one of the marketing agencies in Russia and Belarus.

When asked about BHP Billiton and its expansion plans for Jansen Potash Project, Elliott said it demonstrates that the company has a long-term view of potash’s future. “They can’t decide whether or not to build based on the basis of short-term price fluctuations. The company obviously sees a longterm, positive outlook for potash more so than the daily ups and downs of the spot price.”

If the price of potash moves too quickly either up or down, Saskatchewan will be affected. Elliott was not so much concerned about an increase in price, for there is little downside to that, but if it drops too low he worries about two things: layoffs in potash mines and a decline in government revenues with a corresponding decline in public services. An increase in price is not completely without consequences, however, because of the uncertainty over whether the prices will be maintained. “If the price goes up significantly, we may get into a situation like we were in back in 2009 when the government overestimated their revenues from their royalties. This affected the provincial budget,” he said.

Elliott has high hopes for potash’s future. “The best thing for potash prices would be a gradual upward trend. If the price was around $400 per tonne and went up five per cent a year, almost everyone would be happy.”

We can only hope such a bright future awaits this important mineral.

The graph shows what is called the “spot price” for potash over the past few years. The spot price is not necessarily what producers receive, but it is an indication of the market value of the mineral. Today, potash is selling for approximately $400 per tonne, but for a few months in 2009, the spot price was over $1,000 per tonne. On the other end of the spectrum, it was as low as $200 per tonne in the mid-2000s, so the drop to $300 per tonne that some expect to occur in the next few months might not be as catastrophic as it may seem.

Doug Elliott,the publisher of Sask Trends Monitor