Global supplies of potash could outstrip demand by between 59 and 100 percent by the end of the decade, a research report from Rabobank warns.
The European bank said Tuesday the North American potash consortium Canpotex and its European counterpart BPC won't sit idly by while rivals bring on additional supplies.
But Rabobank said one of the key variables will be the degree to which Brazil, India and China are prepared to endure uneconomic projects — either in their own countries or through investments abroad — in order to meet their own needs.
Collectively, the three countries accounted for about 40 per cent of the world's potash imports.
"In the end, it is mainly geopolitical and long-term strategic security parameters that justify such investments," Rabobank analyst Dirk Jan Kennes said in a release.
"From a pure economics angle, many of these investments might render losses if prices come under pressure due to oversupply."
Another factor is the ability of producers to secure financing for their mines, which is more of a problem for small players than for major ones, Rabobank said.
Canada has one of the world's largest supplies of potash. Exports of the key crop nutrient have been a major source of trade as well as tax revenue for the province of Saskatchewan.
Canpotex markets the fertilizer abroad on behalf of the three biggest Saskatchewan producers: Potash Corp., Agrium Inc. and the American potash producer Mosaic Co.
Agrium spokesman Richard Downey said the cost of building a new mine from scratch is too high to make economic sense for most fertilizer firms these days.
"The challenge is everybody says they're going to build one, but until you've actually committed the billions of dollars it takes to build a new mine, there's actually very little that has actually been announced that has started construction," he said.
German company K+S Group broke ground on its $3.25-billion Legacy mine last week in what will be the first new potash mine in Saskatchewan in nearly 40 years.
Ango-Australian mining giant BHP Billiton is undertaking a feasibility study for its multibillion-dollar Jansen mine in Saskatchewan, with an eye to beginning production in 2015. There has been some speculation that project may be delayed due to market conditions, but the company has said it remains on track.
Aside from those, most companies are pursuing so-called brownfield projects — expansions to existing facilities that are much quicker and cheaper to bring on.
Calgary-based Agrium, for instance, announced late last year it would spend $1.5 billion to expand production from its Vanscoy facility in Saskatchewan from two million to three million tonnes annually.