Future demand for potash is likely to keep on growing — a growing global population needs ample amounts of fertiliser to meet rising food levels, of course.
That is not to say that Sirius Minerals (LSE:SXX) is guaranteed to deliver rich long-term rewards however, once the company’s titanic polyhalite project in North Yorkshire begins to pull material out of the ground from 2022.
Not only does the business face the same uncertainties concerning potential payloads, financing, and other uncertainties associated with all fledgling mining operators, but many other potash producers are also ramping up production to meet the demand surge in the coming years.
Just this month, for instance, Russian producer Uralkali received a licence extension to its Polovodovsky project until 2054. And the business received the go-ahead to build a potash plant with an annual capacity of 2.8m tonnes, due for completion in around seven years.
Therefore, the possibility that the current market oversupply will keep ballooning in the years ahead could seriously hamper potash price strength once Sirius Minerals’ mega-mine comes online in the next decade.
Serious supply fears
I would therefore consider Sirius Minerals to be a risk too far for cautious investors. But the potash play is not the only commodities stock where the potential problems outweigh the possible rewards, in my opinion.
Take oil leviathan BP (LSE: BP), for example. The share has seen its price accompany Brent prices steadily lower in recent months as the prospect of the crude market remaining mired in chronic oversupply lasting much longer than expected has dawned on market participants.
Brent oil fell to fresh four-month lows around $50.50 per barrel after latest EIA data showed US crude stockpiles hitting a fresh record peak of 533.1m barrels last week, once again defying broker expectations of a more modest build.
For all the fanfare surrounding OPEC’s supply freeze late last year, the accord gave North American producers reason to ramp up their operations and make up for the cartel’s reduction.
But the US shale sector is not the only reason for concern, the multi-year investment programmes in other nations also beginning to have a serious impact on oil levels. High levels of imported material from Canada made a huge difference in last week’s stock build Stateside, for example.
And this of course reduces the chances of Saudi Arabia orchestrating another output deal as it loses share to non-OPEC rivals, not to mention those OPEC members who are failing to meet their own supply restrictions.
Given the steady move to renewable energy sources too, as global legislators step up the fight against rising greenhouse gases (a scenario helped by improving technological efficiencies and cheaper user costs) the long-term demand for oil is also looking less than assured, and with it the earnings outlook at the likes of BP.
So which is the superior commodities stock? Well, given the prospect of yawning material imbalances weighing on both oil and potash markets long into the future, I reckon savvy investors should give both a wide berth right now.
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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended BP. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.