BHP Billiton Ltd.’s prospects of building potash into the fifth pillar of its portfolio of big-ticket businesses is looking a long way off. That’s the view of Macquarie Group Ltd., which has a “very pessimistic view” of the market.
The world’s biggest miner’s Jansen project in Canada, which has already consumed about $3.8 billion in capital, is unlikely to be developed unless prices rise, according to Macquarie. The bank has cut its long-term price forecast by 16 percent to $280 a metric ton.
“Our base-case scenario for BHP assumes the indefinite deferral of Jansen’s development,” Macquarie analysts wrote in a note to clients dated Sept. 21. The company will probably favor development of less capital intensive petroleum and copper projects, they said.
Mosaic Co., the largest U.S. producer of potash fertilizer, said Monday it plans to reduce output as low crop prices continue to erode farmer demand for agricultural products. The company, along with rivals including Potash Corp. of Saskatchewan Inc., have endured a 17 percent drop in spot potash prices and are bracing for further declines amid a wave of new capacity.
For Jansen to proceed, prices would need to rise to at least $400 a ton to achieve an acceptable rate of return and probably to about $500 a ton to compete for capital with the company’s other projects, Macquarie said. It forecasts the potash price will average $254 a ton this year.
Potash demand could slide 8 percent next year, leading to a record surplus with new low-cost projects being developed in Russia to England, according to Macquarie. The bank has cut its forecast for 2016 potash spot prices by 7.6 percent to $254 a ton, and to $250 a ton in 2017. BMO Financial Group analysts on Monday forecast the lowest prices since 2009 for potash and urea fertilizers.
Melbourne-based BHP has flagged potash as a potential key division for future growth, identifying the fertilizer as a priority alongside existing coal, copper, iron ore and petroleum units to tap rising consumption and an expanding middle class across Asia. Jansen remains the world’s “best undeveloped potash resource,” BHP said Tuesday in an e-mailed statement in response to the note.
BHP continues to forecast growing long-term demand for potash, Dean Dalla Valle, chief commercial officer and the executive with responsibility for potash, said in July. The producer is seeking to build Jansen sometime in the next decade and remains open to adding a partner in the project, CEO Andrew Mackenzie said last year in an interview.
The company forecasts potash will fall into deficit after 2020 as existing mines are depleted and higher yields are required from arable land to feed a growing global population with diets that include increasing amounts of protein.
“We remain confident of the attractive longer-term market fundamentals and that the world will require greenfield potash supply after 2020,” BHP said in the e-mail.