BHP's potash demand to hold firm
BHP Billiton's appetite for potash is expected to hold firm, despite corporate positioning in Europe that could deflate prices.
BHP has been expected to clarify its commitment to a multibillion-dollar potash project in Canada over the next few weeks, but those expectations were rocked on Wednesday by revelations that two large producers would no longer co-operate in an influential sales joint venture.
The split between Russia's OAO Uralkali and Belaruskali of Belarus is likely to see more potash produced, forcing down the price. BHP has been mulling over whether to spend $500 million to $600 million on sinking new shafts at Canada's Jansen potash mine, in the first step of a bigger plan that could turn Jansen into the world's biggest potash mine. Competition for capital within BHP is fierce, and some observers have suggested that Wednesday's ructions in Europe could be enough to deter BHP from committing scarce cash to the project.
BHP declined to comment on Wednesday, but it has long indicated the construction could take several years. This could insulate BHP from any immediate fluctuations in the price of potash.
Deutsche analyst Paul Young said Wednesday's ructions could affect the pace at which BHP developed the project over the next couple of years, but was unlikely to deter the company entirely. "Overall, this shouldn't change their long-term view on potash, and the fundamentals should not have changed on the back of this announcement," he said.
Mr Young and another analyst who declined to be named both noted that BHP preferred to work in commodities that had transparent, market pricing systems, and both said that Wednesday's ructions had helped move the potash sector closer to spot pricing.
The former BHP boss Marius Kloppers was a strong campaigner for transparency in pricing, particularly in the iron ore sector.
Meanwhile, BHP could soon enjoy increased production from its oil interests in the Gulf of Mexico, which were responsible for the company's only missed production target in the 2013 financial year.
BHP's partner in the Gulf of Mexico, BP, told investors the joint venture Mad Dog rig would improve its performance over the next 12 months.