How It's Made – The Case of Potash
If you are thinking of investing in potash, a good thing to do is to understand how potash is produced. Before it can be turned into commercial fertilizers like SOP and MOP, potash ore must be extracted from the ground and then refined. There are two predominant varieties of potash ore: sylvinite and carnallite.Sylvinite typically has a higher value compared to carnallite as it requires less energy to separate the potassium chloride it contains than it does to separate the magnesium in carnallite.
Potash ore is extracted in two ways. In conventional underground mining, ore is dug out by large machines and transported to the surface. This method is expensive, but also the most common. Solution mining is less common, and involves injecting hot brine (a salt water solution) below the surface of the Earth and into an orebody. The potash-brine water is then pumped back to the surface for cooling and separation in surface ponds.
How do we get SOP?
Potassium sulphate production can either be based on the extraction and processing of minerals from naturally occurring ores or brines (primary production), or the chemical conversion of potassium chloride (secondary production). The latter sets the marginal cost of production and hence the floor price for SOP.
Production of SOP through the chemical reaction of potassium chloride and sulphuric acid at high temperature (the “Mannheim process”) is currently the most popular route, accounting for 50% of global SOP capacity. The process involves pouring potassium and other raw minerals into a muffle furnace that is heated above 600 degrees Celsius, creating a reaction between potassium chloride and sulfuric acid.Potassium sulphate that is sourced from natural brines accounts for 35% of global capacity but this method of production has grown the fastest since 2010.
Besides these methods, there are also producers which react potassium chloride with sulphate salts, mostly located in Germany and China, in addition to a small amount of by-production from sulphate ores. SOP extracted from natural ores currently only occurs as a by-product process (with the possible exception of Iran) but some greenfield project developers are planning on producing SOP as the main product from natural ores.
Understanding the economics
The need of secondary SOP producers to purchase potassium chloride exposes them to MOP market volatility and price fluctuations. Secondary producer economics are therefore much more dependent on the spread between MOP and SOP prices compared to their primary counterparts. Additionally, most secondary producers create by-products which they usually need to valorise or at least avoid penalisation for. The most common of these is hydrochloric acid which has limited applications and often needs to be consumed in more inert products such as calcium chloride. Finding sufficient outlets for the acid by-product often limits a producer’s achievable SOP capacity.
Primary producer costs are, by contrast, driven largely by macroeconomic factors. Their costs are typically less variable as there are fewer significant changes in the underlying macroeconomic factors. Access to raw materials and cost inputs primarily around labour, power and consumables. Primary producers, however, face continuing cost inflation, and their cost advantage diminishes at lower MOP prices. These broadly declined in past ten years the previous decade resulting in average secondary producer costs falling from US$ 480/t to US$ 284/t over the same period. Primary brine-based operations generally still remain the lowest cost route of SOP production, although the gradual site cost inflation among primary producers means that the differential between primary and secondary costs will likely continue to diminish.
Numerous producers use solar evaporation to concentrate naturally occurring brines, which is a cheaper way of obtaining raw potash salts than underground conventional mining. Potassium recoveries in this process can be less than 50%, and, as a trade-off, all SOP producers that rely on solar evaporation are to some extent dependent on weather conditions. Cloudy or cool conditions slow down the rate of evaporation, while rain dilutes the pond brine. Unfavourable evaporation conditions in one year can limit production volume the following year.
Potassium sulphate is commonly produced in three grades: standard or powder, granular and soluble. In addition, a small amount of high-purity industrial grade material is produced. Majority of all standard grade SOP is consumed in the production of chloride-free compound/complex NPKs. The typical distinguishing features of standard grade SOP from soluble product are higher levels of chloride up to 2.5% (particularly from Mannheim route suppliers) and larger particles with a wider particle size distribution. Additionally, standard SOP will usually contain higher concentrations of insoluble materials compared to soluble grades.
Demand for granular SOP is highest in regions where bulk blended NPK products are favoured over compound fertilizers. This is principally in North America and parts of Latin America. Combined we estimate these regions account for more than half of all granular potassium sulphate consumption. There is also use of bulk-blending in Mediterranean Europe, even though potassium is also applied in powder form or as compound NPKs
Standard and granular grades of SOP are seen as the first-choice chloride-free alternatives to potassium chloride. Whereas soluble SOP is intended to be used principally in fertigation. Some companies have also started producing soluble grade potassium chloride, which is also suitable for soluble fertiliser applications. However, as fertigation methods are usually associated with chloride-sensitive crops or soils at high risk of chloride accumulation, this has not been widely adopted.