Markets: BHP's potash hash

BHP Billiton may be done with potash, at least for the time being. It’s hard to see BHP’s board now approving the construction of production and service shafts at the company’s Jansen potash project in Canada after the world’s biggest potash producer says it is abandoning limits on potash output.

OAO Uralkali is also halting cooperation with Belarus, an agreement that helped control supplies in the $US20 billion a year potash market. Potash provides soil nutrient that strengthens plant roots. 

“There’s a lot of capacity in the potash industry and if the supply arrangements have broken down, competition could lead to price weakness,” UBS commodity analyst Daniel Morgan told Markets Spectator. “But there is still a lot of incentive for potash producers to constrain output to support prices.”

BHP Billiton has spent about $2 billion over a number of years on its Jansen potash project, according to UBS. The market has long questioned the world’s biggest mining company’s foray into the potash market. BHP Billiton’s board may at the very least slow down the Jansen development.

On August 20 BHP Billiton will update the market on its spending for its 2014 financial year. The company has said its capital expenditure in 2014 is $18 billion including exploration costs. It may pare back its potash spend in favor of its US onshore petroleum business, says Morgan. BHP Billiton’s overall spending in 2014 could fall. That may be welcome news for investors still concerned about costs amid uncertainty on commodity prices.

Yesterday, BHP Billiton shares rose 40 cents, or 1.2 per cent, to $34.95. The stock has gained 13 per cent since June 25 when it fell to $30.81. So far this year BHP Billiton shares have declined 5.8 per cent.