Agriculture Insight: Fertiliser Stocks to Watch

Supply disruption emanating out of the Ukraine provided the catalyst for a big spike in fertiliser prices. The first Australian potash producer Kalium Lakes (KLL) has debuted into a strong market. We look at the sector prospects and other ASX listed potash stocks.

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Why Fertiliser Prices will Remain High

Belarus and Russia were major potash exporters. These two countries combined produced 35% of global Muriate of Potash (MOP). The tightening of the MOP market has impacted the Sulphate of Potash (SOP) market because MOP is the primary input in the production of approximately half the world’s SOP.

Global SOP supply has also been curtailed by Chinese government export restrictions on a range of fertilisers which were introduced in October 2021.China’s SOP exports for the January to June 2002 period fell by more than half compared to the same period in 2021.

SOP’s price is being boosted by high demand in the overall fertiliser market, which includes nitrogen and phosphorous based fertilisers, amplifying prices. Other key drivers have been high oil prices and strong crop prices.

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Why Commercial Production of SOP is a Big Deal

While MOP is produced in bulk and readily available, SOP is not. The former is used for broad acreage crops like wheat. In contrast, SOP is used in crops that are more sensitive and can’t handle the chlorine in MOP. This includes vegetables and fruit.

About half of all SOP is actually made from MOP, but this is a very expensive process that involves buying MOP. SOP can also be manufactured directly from potassium sulphate rich brines in a direct process, however, this is a very precise process and hard to perfect, certainly at scale.

Australia not only has a great resource in potassium sulphate rich brine in Western Australia, but also in advanced research and technological capability, giving companies a competitive edge.

Kalium Lakes (ASX:KLL) is Australia’s first SOP producer. At one stage it was vying with a fellow listed West Australian company, Salt Lake Potash (SO4). However, SO4’s production methodology faltered at scale and was unable to produce commercial quantities and went into administration.

SO4 has caused investors second thoughts about SOP production in general, which is in part why KLL’s shares have been under pressure. This is despite unquestionably high demand for specialised fertilisers like SOP, arising from high crop prices and the supply disruption out of the Ukraine. KLL has not been helped by a slower ramp up of production than previously expected.

This highlights why this news of KLL’s first commercial projection is a much-needed shot in the arm for the beleaguered sector. Moreover, there are companies other than KLL that are also proving to be pioneers in this industry, which has unquestionably high demand. It must be noted, however, that these other producers are much earlier stage.

Getting Investment Exposure to Fertiliser

Australia is a new producer of SOP. The process is very complicated, but essentially is produced directly from sulphate rich brines, rather than as a by-product of conversion from MOP.

Kalium Lakes (ASX:KLL) is the domestic pioneer in this industry, being the only Australian SOP producer to develop a commercial process thus far, having generated commercial sales and preparing to ramp up production.

There are number of other SOP brine projects in WA, with most at pre-development stage and listed on the ASX

BCI Minerals (ASX:BCI) is the next cab off the rank to be producing, developing the Mardie Salt and Potash project. First production is scheduled for 2H25. The group aims for 140k tonnes a year SOP and 535k tonne high purity salt extracted from seawater rather than brine.

Australian Potash (ASX:APC) is developing the Lake Wells project located 500km north of Kalgoorlie, is at the design phase and is looking for funding partners.

Agrimin (ASX:AMN) is advancing engineering design for a final investment decision for its Mackay project, located 940km by road from the port of Wyndum.

Trigg Mining (ASX:TMG) has completed a scoping study in 2021 for its Lake Throssel project, 170km east of Laverton.

Reward Minerals (ASX:RWD) has two SOP brine projects at Kumpupintil Lake, formerly known as Lake Disappointment, 340km east of Newman, and Officer Basin, a further 100km to the east.

These are two ASX listed companies with overseas potash projects:

Danakali (ASX:DNK) owns the yet to be developed Colluli SOP project in Eritrea.

Highfield Resources (ASX:HFR) has just commenced construction at its Muga underground mining project in Spain to produce MOP (muriate of potash).

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Richard Hemming

Richard Hemming

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Richard is a leading market commentator and expert on ASX Small Caps provides investment opportunities in Small Caps that you won’t get anywhere else.

Under the Radar Report is licensed to give general financial advice only (ASFL: 409518). The author does not own shares in any of the stocks mentioned.

Under the Radar Report is licensed to give general financial advice only (ASFL: 409518). The author does not own shares in any of the stocks mentioned.

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