Mark Anthony

Investing in a Resource-Constrained World (Part IV)

C.M.:

I don't know what nitrogenous minerals you are refering to. The fixed nitrogen in nitrate fertilizers mostly come from the air and synthesized artificially using natural gas, where my favorite PGM metals act as catalyst. We do have a problem as natural gas cost goes up as the natural gas is running out. But I don't see how that can improve profit margin of nitrate fertilizer makers. Any one with adequate money and technology can set up shops and make nitrate fertilizers from the air and natural gas.

I probably shouldn't say potassium is the 7th most abundant on the earth. It's 7th most abundant in the earth crust, where it's accesible. Iron is the No. 1 abundant if you count in the earth core, but as you say the earth core is inaccessible.

Fact of matter is Isreal, as well as Jordan has been cooking the Dead Sea to produce potash for half a century, even during the long decades when potash price was cheap and flat. With higher price, any salty lakes on the earth, or even the ocean itself, could be used to extract potash. once you are talking about the ocean as a resource it becomes unlimited and completely renewable. So I am seeing potash price as a bubble which must burst in short term. I don't know when. Probably after the 2008 harvest. But the price is unsustainable. And I don't see why China should suddenly uses 6 times more potash today than as recent as 1994.

I came from a physics background but I have broad interest in a lot of different topics and I read a lot, learn a lot. I should feel comfortable talking about any topic with experts in a number of different dissiplines in science and technology.

Investing in a Resource-Constrained World (Part IV)

Global potash fertilizer prospect, in 1994:

www.nrcan.gc.ca/ms/cmy...

I am surprised to read that in 1994 global potash fertilizer usage was 19.4M ton, China used 1.8M to 1.9M tons and the USA used 5.6M tons. In 1994, China was already comfortably feeding its population, 1/5 of the global, using arable land only 7% of the global, on less than 1/10 of global potash fertilizers.

Today, reports say the world consumes 30M tons of potash a year and China is consuming 12M while itself produces 3M tons. China is now consuming twice the potash that USA consumes, with half of USA's arable land. That is just ridiculous. I don't see why China can not cut back. Even if China cuts back to the USA level per acre, 3M tons per year should be sufficient, which means China's 3M tons production per year should be self-sufficient.

Potassium is the 7th most abundant element on earth. Without applying any potash fertilizer, the soil already contains lots of potassium elements. The potash price bubble must burst soon.

Investing in a Resource-Constrained World (Part IV)

Another interesting piece to read:

The potash equilibrium - How China buys and Russia sells
www.mineweb.com/minewe...

Investing in a Resource-Constrained World (Part IV)

Read this interesting piece a few months ago:

www.mineweb.com/minewe...

My impression is just half a year ago, the global potash cartels were celebrating a way much modest price gain, breaking the $300 psychological barrier. They were only bargaining for a $50-$70/ton increase from the Chinese, based on what they thought China's inventory situation is.

Since then, the Chinese and the two international potash cartels played a delay tactics negotiation game. Eventually the Chinese looked like defeated and recently concessed to a $400/ton price increase for the 2008 contracts, way much higher than the potash cartels were bargaining for. But is that the whole story?

I think China may have lost a battle but it doesn't necessarily mean it will lose the war. The deliberate loss of a single battle could well be a necessary strategic tactics. The whole thing is based on estimate on China's inventory level. Read this quote: "We expect a return to strong sales demand in 2007, as distributors in China had built large stocks of potash in 2005 that have since become mostly depleted .... Swing producers now monitor global sales to AVOID large inventory buildups"

Read the last few words. They believe China has depleted. And they are careful not to allow a chance for China to build up inventory. What if China has mislead the whole world and indeed they still have large inventory, and is quietly building it up? With one fatal blow China could cause potash price to collapse later this year, if it were to just announce that it has a way much bigger inventory than originally thought. Even if that is simply a bluff it could be enough.

Investing in a Resource-Constrained World (Part IV)

HappyRich:

I agree with the very first sentence your said in your above comment. But you seemed to have a difficult time distinguishing OPINIONS from FACTS. Starting from the second paragraph you cited a bunch of various STATEMENTs from various mouthes (and hence OPINIONs), and then categorily summarized at the start of the last paragraph "These are facts and not innuendo...."

Those are NOT facts. Those are merely opinions expressed by the people you cited. You can't cite other people's opinions and statements and then call them facts. They may or may not reflect reality. You have to take whao those people say with grains of salt.

For example, Doyle stated that POT is going to spent $5B to expand production. Give me a break! That's worth almost 10 times the latest quarterly profit. Why would he throw money away to expand production, just to cause price to collapse and profit margin shrink? If $5B results in 1M tons per year capacity increase, that's $5000 per ton, a pretty hefty price tag way much higher than the fertilizer price itself. From POT's own SEC filings, POT currently ALREADY have 13.25M tons per year production capacity and is only producing 9M tons. They can already produce 13.25M tons if they want to, why would they need to spend any money to expand? Why would it cost them $5B to expand capacity? They just dig more faster. The stuff barely needs much processing to turn into final product. The mines are so rich in potash content that back when potash was only $75 a ton, POT was quite profitable. So the $5B to expand capacity is nothing but smoke mirror. And you can it FACT? Wait till they really spent the money and then you can call it a fact.

Mr. Doyle also expressed the opinion that $1 more spent on fertilizer gives US farmers $3 gain in coins. I remember that $3:$1 ratio from a few years at, at old cheap fertilizer price. It's no longer the case with potash at $600/ton and approaching $1000. Against it's just his personal opinion, you need to check some where else to see if that is the fact or not.

The two points I cited are facts, POT is producing 9M/year, far below its 13.25M tons/year existing capacity, that's from POT's SEC filings. POT also took advantage of last year's Russian flood and suspended sales at that time. Actions speak louder than words. Canpotex, as well as BPC, were limiting production to gauge up price. The strategy will result in rapid expansion of production globally and cause them to lose monopoly power and hurt themselves in the long term. That's why Doyle is not yet willing to follow the Russians and raise price to $1000 for now.

I see potash price collapse later this year. I see the PGM metals sector with a way much bigger growth potential due to the fact that price is inelastic both in PGM metals production and demand. This is a much narrower market in which the Russians can already make the price instantly double or triple if they want to today. So I am sticking to PAL and SWC stocks for best potential of gain in the next two years.

Investing in a Resource-Constrained World (Part IV)

HappyRich:

I presented two evidences in my article. One, POT has 13.25M tons annual capacity, but is currently producing only 9M tons a year. That's a clear desire to limit production in order to hold up global potash price. Second evidence, POT decided to suspend sales temporarily right at the time news breaks out that a major Russian mine was flooded. That was a clear desire to take advantage of a crisis situation. The point is two global potash cartels were trying to limit supply to create a situation to pump up the potash price. This will soon backfire.

Hod:

Let me make it clear I do NO accuse any one or any organization of illegal acts. It's perfectly legal business behavior however POT decide their annual production should be. They do NOT need to produce at gun point. I don't know why any one need to go to jail just because POT did not produce at full capacity.

China's problem is it does not have enough stockpile so it thought it has some bargaining power but really didn't. The international potash cartels can hold off production longer than the Chinese could hold off the contract negotiation. If China had always maintained a three years of supply from decades ago, it would have a way much better bargaining power.

$1000 per ton potash is unacceptable. Farmers will adjust accordingly and the demand could collapse next year. China is rapidly expanding its own production capacity, so does other major potash consumer countries.

Investing in a Resource-Constrained World (Part IV)

The one who made the so called "silver catalyst converter" SCAM two days ago to scare uninformed investors out of their platinum now back stepped from their initial claim. Read this Bloomberg news:

www.bloomberg.com/apps...

Quote "Mitsui said the silver-based technology is for use in farming and construction machinery, rather than car engines."

What a SCAM. Next week they may further back step from the audacious claim by saying that the so called silver catalyst converters is only used in laboratory testing equipments, can not be immitated by any one else, only works in a sulphur free environment, and that they won't be ready to demo it publically until year 2012.

It's amazing how corrupted corporations can become, over a few ounces of metals.

A Long List of Possible Shorts

Can you explain why you are trying to short coal stocks. What's the rationale? I actually like coal a little bit. Also have a look at platinum group metals. Check out PAL and SWC:

seekingalpha.com/artic...