Friday, 13 April 2012

What is Potash anyway?

  Well, it is a general term used to describe many different compounds containing potassium, which is an important nutrient required for plant growth. 
According to The Canadian Encyclopedia, pioneers usually produced potassium fertilizer by leaching wood ashes and then having the solution evaporate in huge iron pots.
Currently about 95% of the world's potash continues to be used in fertilizers, with the remaining 5% being used in the manufacturing of products ranging from glass to explosives.
Thanks to huge reserves in Saskatchewan, Canada is the world's leading exporter of potash and is so far ahead of other countries in the production of potash that even though places like Brazil and the United States produce their own and have reserves of it, they continue to import very large amounts of potash from Canada.
The world’s largest producer of potash is our very own, Potash Corporation. (Stock symbol: POT) This Canadian corporation is based in SaskatoonSaskatchewan, and not only produces 20% of the world’s potash supply, it is also the 3rd largest producer of nitrogen and phosphate.  Together these three primary crop nutrients are used to produce fertilizer. The company is part-owner of Canpotex, which manages all potash exporting from Saskatchewan.  The other two Saskatchewan producers that are also part of Canpotex are Mosaic and Agrium.
This fearsome threesome has been criticized many times for Potash price inflation.  Why you ask? Because they can get away with it. During the recession, this group of producers was really under fire because they were seen to be holding their prices artificially high even though there was a drop in demand for potash. 

Monopoly Powers

So here’s the Monopoly Factor: We’ve already told you that Potash is the largest global producer of Potash fertilizer in the world (approximately 20% of global volume), the lowest cost producer, and the key member of Canpotex, the largest global exporting consortium. Because they sell such a significant portion of the world’s output, they control the price. They also have developed special techniques to differentiate their products into specific grades of fertilizer in order to suit specific growth needs, which helped further their monopoly power. Companies liked the new formulas, and thus began purchasing more Canadian Potash than from other markets. As a result, the company enjoys as much as a 90% market share in particular markets. 

                There are also significant legal barriers to entry into this market. In 2010, Australian mining conglomerate BHP attempting to buy Potash, and enter into the fertilizer market. In response to this the Canadian government intervened, not allowing the buyout of the company. This is an example of a legal barrier to entry into the market, and strengthens Potash’s monopoly power.
It is because of these factors that Potash holds significant monopoly power in the fertilizer market, and will continue to be a juggernaut for Canadian business moving forward.

No comments:

Post a Comment