Rabobank analysts went head to head with PotashCorp over the future of the potash industry, foreseeing its "impending uneconomics", hours after the fertilizer giant painted a far more benign picture.
Rabobank warned of a "critical challenge" to the dominance of the potash producers, whose small number has allowed them to keep a tight hold on supplies, and fostered a "remarkable shift" in prices to an average of $420 a tonne since 2007 - compared with $140 a tonne over the previous five years.
The higher prices had sparked the announcement of 60 new projects, set to erode the "oligopoly" of existing producers, and "shift the market towards the buyers' side".
And power may swing further towards consumers if importers such as Brazil, China and India ramp up investment in supplies – abroad if necessary – to building "closed supply chains, meaning fewer opportunities for traders in the potash market".
Talk versus action
The potash market is set for excess capacity of at least 59%, compared potash supplies on the open market, and potentially 100%, by the end of the decade, with implications of lower prices.
The comments contrast with an assessment released minutes earlier by PotashCorp, the world's top potash group by capacity, that the industry "could be challenged to meet the world's rising potash demand in the years ahead.
"While some observers believe new potash supply could outpace the global need in the coming years, what is often overlooked is the challenge for mines… to achieve full operational capacity.
"For most of 2011, reported geological, logistical and operational issues constrained the industry's ability to meet underlying demand, highlighting the need for new capacity."
Separately, in comments to a webcast, PotashCorp chief executive Bill Doyle said: "This business is real easy to talk about - it's much harder to do.
"There are no greenfield projects coming on in the next five years, between now and 2017. None."
The debate follows an assessment by the International Fertilizer Association that while, on paper, potash capacity looks set to soar, and far exceed demand, this assumes an improvement on the fertilizer industry's record of project delays.
Nonetheless, even if the new projects - from currently small potash players such as BHP Billiton and Eurochem besides existing giants such as Mosaic and Uralkali – do not come on line as expected, this may not imply high potash prices, Rabobank said.
Traditional groups may allow potash prices to slide to levels at which opening greenfield sites did not stack up financially.
"The existing producers have low production costs and the ability to increase their own output, which could reduce prices to a level that makes new production uneconomic," said Rabobank analyst Rakhi Sehrawat.
The bank in fact saw the key variable as the level to which importing countries' "desire to break their dependence on limited players", with most export supplies wrapped up in two consortia, North America's Canpotex and Belorussian-Russian BPC.
"Growing import reliance, frustration from one-sided contract negotiations with suppliers and the strategic importance of potash for the sustainability of their growing agricultural sector are the primary drivers for these countries to invest in greenfield projects.
The "sizeable number" of mines being developed by junior companies meant "there are clearly plenty of options for importers to choose from".
"In the end, it is mainly geopolitical and long-term strategic security parameters that justify such investments."