Fertilizer International 523 Nov-Dec 2024
30 November 2024
New SOP capacity – reality bites
POTASH PROJECT UPDATE PK
New SOP capacity – reality bites
The prospect of a drastic expansion in potassium sulphate production has been linked to a plethora of projects in Australia, Ethiopia, and Eritrea. These have sought to take advantage of market tightness and high price premiums. Yet investor interest in supposedly promising projects has waned over the last few years. In this insight article, CRU’s Alexander Chreky explains the reasons behind the high project failure rate, as well as highlighting some limited successes.
Introduction
Potassium sulphate (sulphate of potash, SOP) is valued as a low-chloride potassium and sulphur source for chloride-sensitive cash crops such as tobacco, fruit, and vegetables. While SOP accounts for a little under 10 percent of global potash demand, far behind the much more widely traded and produced potassium chloride (muriate of potash, MOP), it commands a significant price premium over MOP, principally due to its value as a low-chloride potassium fertilizer.
SOP is manufactured either through secondary processes which react MOP with a sulphate source, most commonly sulphuric acid in the Mannheim process, or via primary production routes that extract and process natural brines. Global SOP production capacity is around 12.6 million tonnes, estimates CRU, with primary capacity accounting for around 30 percent of this total.
But there’s a problem in the world of SOP: a lack of new capacity outside of the self-contained Chinese market, the world’s largest demand centre (Figure 1). Price signals provide the main evidence for this – with the SOP price premium over MOP reaching record levels. NW Europe SOP has maintained an average premium of $265/t over MOP during the last quarter (Q3) and shows no signs of falling any time soon.
Not that there’s been a lack of trying. In recent times, a flurry of primary SOP projects, most notably in Ethiopia, Eritrea and Australia, have been vying to enter the market. Collectively, these projects have the potential to add more than two million tonnes per annum (t/a) to global SOP capacity by the end of the decade, a 16 percent increase on current levels. Yet, in 2024, very few of these junior mining ventures remain as serious contenders likely to enter commercial production by 2030.
East African potash hopes remain distant
Eritrea and Ethiopia once had high hopes for SOP production, given the abundant reserves in the Danakil region. Despite their early promise, however, all major SOP projects in the region have failed to materialise. Factors such as a lack of infrastructure, conflict, corruption, and sanctions have seen leading East African projects (Figure 2) either indefinitely delayed or prompted owners to divest their assets to Chinese developers and others.
The Danakil depression hosts extensive potash resources, with abundant and high-grade sulphate mineralisation present at accessible depths. The Ethiopian-Eritrean border bisects the northern part of the resource with mineral licences held on both sides.
In Eritrea, leading SOP developer Sichuan Road & Bridge Group/ENAMCO, alongside other less advanced projects from Beijing Sinoma Mining and Essel Group, were planning to deliver SOP capacity totalling 500,000 t/a. In Ethiopia, meanwhile, Circum Minerals and Ethiopotash (formerly Yara Dallol) have pursued projects with a combined capacity of nearly one million t/a in their first phases. Also located in Ethiopia is an inactive mining project previously developed by Allana Potash and ICL.
Yet the various attempts to develop East Africa’s abundant SOP resources have seen project hopes dashed and commercial interest in these thwarted.
In 2015, potash incumbent ICL acquired Allana Potash Corp and its MOP+SOP Danakhil project – with this initially appearing to be a major turning point for the Ethiopia’s agricultural and industrial sectors. The Israeli potash producer was set to invest more than $1 billion in the project, according to media reports at the time, with three new fertilizer blending units planned.
However, in a dramatic reversal, ICL abandoned the Danakhil project less than 18 months after its purchase due to a legal dispute with the authorities. The company ended up taking the Ethiopian government to the Permanent Court of Arbitration in the Hague, seeking compensation for an alleged illegal tax assessment.
“There is a lack of new SOP capacity outside of Chinese, with price signals providing the main evidence for this.”
It transpired that the Ethiopian government had attempted to claim $50 million in unpaid tax after ICL sought to transfer mining licences to its subsidiary Allana Potash Afar. This huge tax bill was unfounded, in ICL’s view, and consequently the company terminated its interest in Ethiopia, having no doubt decided that the country was too high risk for major capital investment.
Then, in November 2020, other SOP projects in the region stalled after fighting broke out in Ethiopia’s Tigray province. This forced developers to pause activities, evacuate employees, and reconsider their project plans.
Norwegian fertilizer producer Yara was the first major company to exit, selling its Dallol project stake to Ethiopotash in July 2022. There have been no major project updates since this sale more than two years ago.
Australian junior Danakali was the next to bolt, selling its stake in its joint venture Colluli project to China’s Sichuan Road and Bridge Group in late March 2023, saying that sanctions had made fundraising for the Eritrean-based project very difficult. The Danakil project in Ethiopia, owned by Circum Minerals, is likely also dormant awaiting the injection of new capital, given that it has not reported any significant updates since 2018.
Overall, the frosty relations between Ethiopia and Eritrea make any sort of cooperation over exploitation of the Danakil potash reserve unlikely in the near term. A lack of governance and poor regional infrastructure will also continue to hamper these projects going forward.
A final consideration is that Ethiopia – despite its rapidly growing fertilizer consumption – does not consume significant quantities of potash currently, either for direct application or as part of compound/ blended NPKs. This is partly linked to the fact that potassium is considered non-deficient in most Ethiopian soils, with the country choosing to import huge volumes of NPS fertilizers instead. Local farmer preferences are important as strong domestic demand for potash could have helped to derisk some of these projects, while the absence of such demand may hamper development of the region’s potash resources in future.
Australian projects fall at final hurdle
Until recently, Australia was being touted as new SOP production hub for the Asia-Pacific region. As SOP prices hit record highs in 2022, the country boasted nearly twenty potassium sulphate projects at various stages of development. Of these, around seven have progressed the furthest (Figure 3) with two seeming to have serious prospects of sustained commercial production after reaching the commissioning stage.
However, in what has become a familiar story, commissioning difficulties, cashflow problems and indebtedness have combined to hobble Australia’s emergence as an SOP production centre. Instead, most developers have now either paused or been forced to abandon their SOP projects, with some pivoting towards other commodities.
The pathfinder Lake Way and Beyondie SOP projects, while both crossing the finishing line and entering production during 2021, ultimately failed to sustain this commercially.
The Lake Way project was commissioned by its original owner Salt Lake Potash in April 2021 and later began commercial production in June that year. However, Salt Lake Potash went into receivership in October 2021, with accrued debts of AUD 127 million, having struggled to fully commission the plant and generate the anticipated output and returns.
Lake Way has since been revived under new ownership, after its purchase by the Czech private equity firm Sev.en Global Investments in late 2022 for an undisclosed amount. While details are sparse, Sev.en announced its first production of SOP at Lake Way in July this year, with plans to scale-up commercial operations to 200,000 t/a and become a significant domestic and global supplier (Fertilizer International 522, p9).
Following closely on the heels of Lake Way, Kalium Lakes started SOP production at its Beyondie project in October 2021, subsequently delivering an inaugural product shipment to CSBP Fertilisers in August 2022. Kalium had plans to ramp up SOP production capacity at Beyondie to 170,000 t/a. But commissioning issues affected the plant’s ability to deliver a stable and consistent SOP output. The result was missed production targets and financial difficulties that ultimately led to the company entering receivership in August 2023.
In a disappointing finale, the receivers ended up auctioning off the project’s assets to pay off creditors after attempts to find a buyer failed. All is not lost, however, as Reward Minerals recently announced it will acquire Beyondie’s production plant assets for a knockdown price of AUD 2.13 million. The purchase includes the fully constructed processing plant, site offices and maintenance infrastructure.
The reputation of BCI Minerals as the last man standing in the world of Australian SOP projects might be due to its focus on sodium chloride production as the primary output (5.3 million t/a) from its Mardie project rather than SOP (140,000 t/a).
Like other Australian projects, BCI Minerals plans to use large-scale evaporation and concentration ponds to generate the highly concentrated brine needed for SOP production. Unlike these other projects, however, Mardie will produce SOP from seawater instead of hypersaline lake water. The only other commercial SOP producer currently using this method globally is CNOOC Shandong Ocean Chemicals at its 20,000 t/a capacity plant in Shandong, China.
Mardie is a fully funded, under construction project, having received AUD 650 million from the Australian government alongside finance from private investors. Key environmental approvals were granted in July this year, with first SOP production scheduled for 2027.
Other Australian SOP ventures remain in the study phase and, with the less favourable investing environment for these currently, many developers have pivoted to other ventures.
Reward Minerals has surrendered other leases to focus on its flagship Carnarvon potash project and recently acquired Beyondie project assets. The developer is also hoping to market its “breakthrough potash processing technology” to third-party companies around the world.
Agrimin, meanwhile, is still pursuing funding for its Lake Mackay project – which it claims is the world’s largest undeveloped salt lake potash resource – having completed various feasibility studies.
Australian Potash, previously associated with the Lake Wells SOP project, announced it would refocus on other minerals such gold and nickel after exiting administration in February 2024, citing the lack of investor enthusiasm for SOP projects.
Similarly, Trigg Minerals has relinquished its Lake Rason and Lake Yeo tenements in Western Australia to focus on its “core Lake Throssell SOP asset”, as well as announcing a shift to developing gold and base metals instead. The company also signalled it was pursuing “an alternative pre-processing approach” to that used by previous SOP operators.
Parkway Minerals was developing the Karinga Lakes SOP project as a joint venture with Verdant Minerals. But its lapsed website domain raises questions about the extent of current project activity.
Finally, Centrex Metal’s Oxley SOP and NOP project looks likely to remain in the feasibility phase for the time being while the company focuses efforts on its Ardmore phosphate mine expansion.
A limited capacity pipeline
Globally, outside of the remaining Australian projects, there are only a few potential new additions to SOP capacity over the next five years. Indeed, only 290,000 t/a of additional SOP production capacity is expected to be brought to market over this period – setting aside new additions to secondary production capacity in China, a self-contained market.
Some new ex China SOP capacity will come via the secondary production route and the rapid construction of small-scale Mannheim units. These include Indorama’s 20,000 t/a capacity Kokand SOP plant in Uzbekistan and Evergrow’s planned 30,000 t/a SOP expansion in Egypt.
Realistically, only two SOP projects are large enough to export either regional or globally: BCI Minerals’ Mardie salt project in Western Australia (see above) and Cinis Fertilizer’s new SOP plant at Ornskoldsvik, northern Sweden.
Cinis Fertilizers: a potential SOP game-changer?
Cinis Fertilizer’s commissioned the Ornskoldsvik potassium sulphate and sodium chloride production plant in early June 2024. Unusually, the unit employs the little-used glaserite process to make SOP.
Unlike the Mannheim production route, which uses sulphuric acid in high-temperature furnaces, the glaserite process used by Cinis manufactures SOP by combining potassium chloride and sodium sulphate under lower temperature conditions. Additionally, the process yields sodium chloride as by-product rather than hydrochloric acid produced via the Mannheim route – the latter typically being more difficult to offload.
“Globally, other than remaining Australian projects, there are only a few potential new additions to SOP capacity over the next five years.”
The Ornskoldsvik plant has nameplate capacities of 100,000 t/a for SOP and 65,000 t/a for its sodium chloride by-product. The company holds offtakes with Van Iperen International for the SOP and with K+S for the salt, with the latter company also supplying the MOP feedstock for the process.
The Ornskoldsvik plant is the first to be delivered from an ambitious SOP project pipeline. Cinis ultimately plans to operate a total of 1.5 million t/a of SOP capacity via the construction of a series of plants across the Nordic region and North America by the end of the decade. This would represent slightly more than 10 percent of global potassium sulphate capacity, equivalent to more than half of current global demand outside China.
A key question is why Cinis has opted to use the glaserite process and – given the environmental and cost benefits claimed by the company – why this production method has not been more widely adopted across the SOP industry instead of the more commonly used Mannheim route. The answer to this largely centres on the availability and cost of the sodium sulphate feedstock consumed by the glaserite process versus that of the sulphur/sulphuric acid consumed in Mannheim production.
Feedstock requirements
Cinis has longstanding plans to use locally available, low-cost sodium sulphate sourced from the waste streams of wood pulp mills and battery manufacturing plants. The company assumes a sodium sulphate cost of SEK 0-500 /t (around $0-50 /t), based on its 2022 IPO prospectus. In September, Cinis signed its first waste-derived sodium sulphate supply agreement with Swedish environmental company. Prior to this, the company has been purchasing merchant sodium sulphate as an interim measure.
At face value, the traded sodium sulphate price is not substantially different to that of sulphur or sulphuric acid. Since the start of the year, sodium sulphate (f.o.b. Spain) has averaged $110 /t, for example, with the sulphur price (cfr North Africa) only around $15 /t lower on average. Cinis will, however, be paying for freight on top of this. While vessel size limitations at its port (5,000 dwt) will add to freight costs, total import costs for Ornskoldsvik are still likely to be well below $200 /t.
However, a major caveat is that the sodium sulphate requirements of the glaserite process are four times higher than the sulphur requirements of the Mannheim process. One tonne of SOP obtained via the glaserite process needs 0.79 tonnes of sodium sulphate, for example, whereas a Mannheim unit only consumes around 0.2 tonnes sulphur to produce the same amount of SOP.
Although additional energy costs are associated with sulphur burning in the Mannheim process, the highly exothermic reaction that takes place allows Mannheim units to benefit from energy co-generation. They can also trade excess sulphuric acid to generate sales income.
Moreover, sulphur and sulphuric acid are far more widely traded than sodium sulphate. Total global sulphur exports were around six times larger than those of sodium sulphate between 2019 and 2023, CRU estimates. China also appears to dominate sodium sulphate exports, with Spain being the only other significant exporter.
Consequently, the use of merchant sodium sulphate in SOP production, in comparison to sulphur, faces supply availability limitations and potentially significantly higher raw material procurement costs. It is therefore not surprising that glaserite plants have previously been located at or adjacent to sodium sulphate production centres.
Procurement plans
Almost certainly, this makes procuring locally available, lower-cost sodium sulphate an immediate priority for Cinis. This has been achieved via its new supply contact with Ragn-Sells. Negotiations to secure waste sodium sulphate from wood pulp mills, meanwhile, are continuing.
However, sourcing sodium sulphate from other waste streams could be more promising. Notably, the disposal of sodium sulphate has become something of a headache for prospective European battery cathode manufacturers. Indeed, a nearly finished BASF cathode plant at Harjavalta in Finland had its environmental permits revoked in February 2024 largely because of concerns over sodium sulphate waste disposal.
Cinis has clearly positioned itself as an off taker of sodium sulphate waste from battery makers. The company has signed a 200,000 t/a offtake sourcing sodium sulphate from Northvolt, for example. This is not currently active, however, because Northvolt’s only operational battery manufacturing facility at Skellefteå has not yet begun precursor cathode active material (PCAM) production – the stage at which sodium sulphate is generated. Northvolt’s other planned cathode production plant at Borlänge now appears to be in serious doubt, with the proposed plant currently under review after key off-taker BMW cancelled a $2 billion battery cell order on 20th June.
Despite short term setbacks, longer term expectations of rapid growth in EV demand and localised battery supply chains could see much greater sodium sulphate availability. Conversely, electrification of transport, by contributing to a decline in oil and gas production, is expected to reduce sulphur availability.
Furthermore, the record high price premiums for SOP mean that Cinis can currently absorb higher sodium sulphate procurement costs, if it needs to purchase on the merchant market. Undoubtedly, European Mannheim producers will be watching the progress of Cinis Fertilizers very closely over the coming year. That’s because the nascent Swedish producer is not just a competing SOP supplier – it is also pioneering the scale up of an alternative secondary SOP production route.
Summing up
In CRU’s view, the market for SOP looks set to remain tight going forward. Demand is forecast to continue growing to nearly eight million tonnes by the end of the decade, while supply additions remain limited. This suggests incumbent SOP producers will have to increase their operating rates in the coming years in response to rising demand, with market tightness maintaining a high price premium for this specialty potash product.
About the author
Alexander Chreky is a Fertilizer Analyst and potash market specialist at CRU.
Email: alexander.chreky@crugroup.com Tel: +44 20 7903 2216
