Ukraine war thrusts fertiliser minerals to centre of food security debate

The vital role of fertiliser minerals in food production has propelled a niche corner of the mining industry to the centre of a global debate about the security of supplies.

Potash and phosphate rock surged in price after Russia’s full-scale invasion of Ukraine last year. In June, US lawmakers even proposed adding them to the country’s list of critical minerals in new legislation in Congress.

“Our food security is our national security, so when we’re dependent on Russian and Chinese minerals for the fertiliser that grows our crops, we are putting ourselves at risk,” said Democrat congresswoman Elissa Slotkin, one of the sponsors of the bill. 

Several of the west’s largest mining companies have already begun to expand into fertiliser production, anticipating that the world’s increasing population will deliver continued growth in demand.

Potash and phosphate are crucial crop nutrients: potash is a source of potassium that helps crops such as corn and soyabeans increase their yield; phosphate rock provides plants with phosphorus. These two compounds, alongside nitrogen, are the foundation of modern fertilisers.

BHP, the world’s largest mining company, has begun construction at a $5.7bn Jansen potash mine in Canada, the company’s biggest new project to be approved in the past decade in capital expenditure terms.

Another behemoth under construction is Anglo American’s $6.1bn Woodsmith mine in northern England, which will produce a new kind of potassium-rich fertiliser, polyhalite, from 2027.

Expanding into fertiliser is “another leg in the stool”, said Tom McCulley, head of crop nutrients at Anglo American, the London-listed miner that also produces copper, platinum and diamonds through its subsidiary De Beers.

“There is really good logic to mining companies getting into fertiliser,” said Tim Cheyne, head of agriculture and fertilisers at Argus. “It is an industry that is going to be around forever . . . That gives some diversification value.”

Historically the price of crop nutrients has had little correlation with other mined commodities such as iron ore or copper, which makes it attractive for large diversified miners.

“By 2050, the world is projected to be home to around 10bn people, that’s 2bn more than today,” said Mike Henry, chief executive of BHP, in an earnings call this year. “Those 10bn people will need more efficient food production from less arable land — supporting demand for potash for fertiliser.”

Analysts expect potash demand to tick up about 1 per cent a year at the end of this decade. But while the long-term demand trend may be clear, the past several years have been volatile.

Before the Russian invasion of Ukraine, sanctions on Belarus alarmed the market. When the war began, that turned to panic — Russia and Belarus together account for 40 per cent of global potash production.

This prompted North American potash producers to step up.

“At the time we were receiving calls from around the world, not just customers, but also governments concerned about stable potash supply,” said Chris Reynolds, president of potash at Nutrien, the world’s largest producer. “They were really pleading with producers of potash to increase the supply.”

Production is concentrated among just a few companies — Canada’s Nutrien, Mosaic of the US, Belaruskali of Belarus, and Russia’s Uralkali account for more than half of global supply.

Potash prices rose to their highest levels in a decade just after Russia invaded Ukraine as buyers started to stockpile, but the rise was shortlived because farmers responded by using less potash on their crops.

Today potash prices are less than half of their highs during the early stages of the war, as more Russian and Belarusian supplies have been able to reach global markets than expected.

The falling prices prompted Nutrien to halt its plans to expand production, it announced earlier this month.

It is also holding back production in response to market conditions. While the company has the capacity to produce up to 15mn tonnes of potash a year if needed, this year it expects to sell between 12.6mn and 13.2mn tonnes.

“We are at the bottom of the potash price cycle again,” said Chris Lawson, head of fertilisers at consultancy CRU.

He expects prices will slowly move higher by the end of this year and into next year as the market rebalances. “We are expecting an uptick in demand to 64mn tonnes this year from 59mn tonnes last year,” he added.

When BHP’s giant Jansen mine comes online in late 2026, it will boost the availability of Canadian potash further. The mine is expected to produce 4.4mn tonnes a year initially — equivalent to 5 per cent of projected global demand.

For other types of mined fertilisers such as phosphate rock, the war in Ukraine has had less of an impact, but the energy transition could have a much bigger one.

Phosphate rock, which is mainly produced in Morocco, China, the US and Russia, is used not only in fertiliser production, but is also a key input for an increasingly popular type of electric vehicle battery.

These batteries, known as lithium iron phosphate (LFP), are expected to increase demand for phosphate rock by as much as 4 per cent by the end of this decade.

The picture is much less clear for new fertilisers such as polyhalite, which Anglo American is planning to produce at its mine in Yorkshire. At present, there is only a niche market for the product.

McCulley is confident Anglo can create a global market for the product; the company aims to produce up to 13mn tonnes a year once its Yorkshire mine is fully developed. 

Polyhalite, which contains potassium, calcium, magnesium and sulphur, has been shown in tests to improve crop yield and is an organic product that requires minimal processing between mine and field.

Some analysts believe the company is over-optimistic about the size of the potential market. Polyhalite is already produced in small quantities by fertiliser company ICL.

“Polyhalite is a niche product, it doesn’t really make money,” said Joel Jackson, analyst at BMO capital markets. “ICL is a very smart speciality fertiliser marketer, and they barely make money on this product.”

“It’s a challenge, definitely,” said McCulley. “This is the first new [fertiliser] product at scale in somewhere between 50 and 75 years.” But, he added, “it’s about how we market it”.

The prospects for fertiliser miners may depend on new government policies classifying them as critical minerals, paving the way for tax breaks and subsidies to help the industry develop.

There has not been much progress yet on the US bill that seeks to label potash and phosphate rock as critical minerals, but that could change. Reynolds of Nutrien says potash should be considered a critical mineral.

“It is certainly critical from a point of view of growing strong healthy crops,” he said. “While it is nice to have electric vehicles and computers, I would put food above all of those items.”