BHP Billiton watches potash price recovery while progressing on Jansen Mine
The price of potash has rebounded in recent months thanks to the efforts of Canada’s Nutrien Ltd, the world’s biggest potash miner by capacity, which has helped engineer the recovery by idling capacity. While the higher prices are welcome news, the company will be careful not to let the prices rise too high in an effort to hold off market competition from mining giant BHP Billiton.
BHP Billiton has been progressing slowly on the construction of its Jansen Mine Saskatchewan. That mine could be the largest potash mine in the world when it is in production, but BHP has held off on committing the capital needed for completion, because of soft prices, Reuters reported.
A BHP entry would create stiff competition in Canada, where a marketing arrangement allows Nutrien and Mosaic Co to dominate. BHP’s entry could also challenge the price recovery.
Nutrien plans to wield its 8.1 Mt (8.9 million st) of unused capacity to protect its position, in a switch from its previous strategy of using curtailments to lift prices even at the cost of market share.
Chief Executive Chuck Magro, asked whether Nutrien intends to balance its desire for higher prices with an effort to keep competitors out, told Reuters, “that’s exactly the way we think about it.”
Nutrien’s idled production represents 11 percent of current global operational capacity and will be deployed once prices approach levels that would encourage new mines, he said.
“There will be a price in the global market, that once we get there, you will see Nutrien put more tonnes into the market because the demand is there. We will not be shy,” Magro told Reuters.
Prices are well below such a level, he said, declining to identify it.
Granular potash sells for an average $331/t ($300/st) in Brazil, as of Aug. 17, up 25 percent year over year, according to Mosaic data.
BHP likely needs prices in Brazil of around $400/t ($362/st) to realize a reasonable return on the Jansen mine, said Bernstein analyst Jonas Oxgaard. Nutrien will need to keep prices below that level to avoid “waving a red flag in front of the BHP bull,” he said.
A spokeswoman said BHP takes a long-term view of commodities and investment decisions are not based on short-term prices.
BHP has approved $3.9 billion in spending on the Jansen mine, allowing it to sink mine shafts. That work may last up to two years, and building the first 4 Mt (4.4 million st) stage of the mine is expected to require a further $4.7 billion that BHP’s board may consider next year.
Three more stages of equal size are longer-term options, taking the mine to 16 Mt (17.6 million st), or more than double the world’s current largest potash mine.