In today’s guest post, Emerson’s Michael Pearson of the Rosemount measurement team highlights the changing economic conditions for potash producers and how flexible mining operations are important to ongoing success.
Potash. Ask the average person what it is and they would have no idea. However, Potash is a major part of the world in which we live. According to the United States Geological Society, Potash denotes a variety of mined and manufactured salts, all of which contain the element potassium in water-soluble form. Potassium is an essential nutrient for plants, as well as humans and animals. It is for this reason that Potassium, along with Nitrogen and Phosphorus, are the three main components of most fertilizers.
So how does potash fit it? Potash is the most abundant form of raw potassium. In 2011, the fertilizer industry used about 85% of US Potash sales, and the chemical industry used the rest. Because of the rising worldwide demand for food, and thus fertilizer, the demand for potash has drastically increased in the past decade. As a result, we have seen a drastic increase in potash mining operations and investments. Sounds pretty good right? People need food–food needs Potassium–Companies provide Potassium in the form of Potash and make money to sustain and grow their businesses.The problem is that Potash used to be extremely undervalued. Companies rapidly expanded production as demand for fertilizer grew. We are now at a point where Potash is becoming overvalued, and investors are noticing. Stock in Potash Corp., one of the world’s largest Potash suppliers slid 3 points in the last week following a J.P. Morgan rating change from “Neutral to overweight“. This, following their idling of several potash mines to keep in step with decreasing fertilizer demands.
So what should these Potash companies do? Many have over-developed their operations and as a result have significant risk as Potash demand fluctuates. I think the key in the long run will be establishing flexible operations. By this, I mean operations that can easily be scaled up or down to stay in step with fluctuating fertilizer demands. To achieve this, companies need to develop plans that involved reduced overhead, increased process efficiency and the ability to quickly ramp up or ramp down production.
We are coming up on the end of the Potash fantasy–where handsome profits were realized. Some companies will continue to flourish and I for one am excited to see how companies adapt to the changing Potash market place.