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New potash player K+S faces warehouse squeeze

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Germany’s K+S AG will crack into the US fertiliser market this spring when it opens the first new western Canadian potash mine in nearly five decades.


But the fifth-largest global potash seller faces a stiff challenge before it makes a single delivery: Where to store the pink granular nutrient until farmers need it.


The US market for potash — a key type of fertiliser used to grow corn and wheat — is already dominated by Potash Corp of Saskatchewan, Agrium Inc and Mosaic.


It’s also saturated: potash prices are near nine-year lows.


Not only do these market leaders have an ample supply of potash, they also boast a string of warehouses built strategically across the Midwest where they can quickly distribute their product to US farmers, who have a narrow window every spring to fertilise.


K+S, which will open its Legacy mine on Tuesday in Saskatchewan, said it is still in “planning phase” of a warehouse network with Koch Industries Inc, which will sell K+S’ potash in the United States under a marketing agreement.


K+S spokesman Michael Wudonig added the company is confident it will find sufficient storage.


Koch spokesman Rob Carlton declined to comment.


Investors don’t have a clear understanding of K+S’ missing warehouse link as it opens Legacy, according to analyst Charles Neivert, who covers the fertiliser industry at Cowen.


“How are they going to get into a US market that effectively is grossly over-supplied already and isn’t growing? Where are they going to find room to put the (potash)?” Neivert asked.


K+S’ success in distributing potash has big market implications, given there is already a glut of global capacity.


Even more potash from Legacy will threaten a modest price recovery seen so far this year.


Since K+S broke ground on Legacy, US potash prices have fallen roughly in half, to around $250 per tonne, according to data published by BMO.


K+S plans to sell up to 500,000 tonnes of potash annually in the United States, accounting for some 7 per cent of US demand, according to industry estimates.


Legacy will also answer a longer-term supply issue K+S faces, as potash at its other mines is depleted.


Potash Corp, Agrium and other potash players dominate the US market by leveraging their own warehouses and longtime leases with others to position potash for just-in-time application by farmers.


The alternative is relying on the 10- to 14-day railway trip for potash to move from mines in Saskatchewan to buyers in the Midwest and northern Plains. — Reuters


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