After precious potash, what else is hot?

Sunday, 7 November 2010

BHP Billiton's audacious US$39bn (£24bn) hostile bid for Potash Corporation of Saskatchewan has had investors everywhere reaching for their dictionaries and atlases. The huge deal has been the talk of the City for months, and the chatter is now at fever pitch.

Just last week, the Canadian government bowed to public pressure and blocked the bid for the country's precious potash market leader. It did so essentially on the grounds that overseas ownership was not of net benefit to the country.

Russians are considering a rival bid, while the BHP chief executive, Marius Kloppers, rethinks his strategy to snare his Canadian prey.

Most importantly, the bid has raised the following questions: just what the hell is potash? Why is it so valuable? And, are there other commodities outside of the obvious gold, copper and iron ore markets that might also be worth a punt? Here is The Independent on Sunday guide to the best, little-talked-about commodities money can buy.

Ambergris

The waxy substance produced in the stomach of sperm whales or regurgitated from them was widely used in perfumes until the ban on whaling. It is now legal again to use ambergris – grey amber – found floating at sea or washed on to coasts. Its rarity makes it much sought after. Uses include incense, scented cigarettes and aphrodisiacs. It is found in several oceans but the Bahamas is its main centre. Lumps sell for $20 a gram – about $500 an ounce.

Diamonds

The girl's best friend halved in value after 2008 and the Diamond Trading Company subsidiary of the De Beers mining giant had sales tumble from $5.93bn to $3.24bn last year. Gemstones are valued on the four Cs – carat, colour, clarity and cut. A carat is 200mg (so just over 140 make an ounce) and Rapaport Report now quotes a range for single-carat stones of $1,000 to $24,000, depending on quality – only slightly higher than five years ago. However, 80 per cent of the 130,000 carats mined each year are unsuitable for gems.

Diamonds are the hardest natural material and thus are used by industry for cutting and grinding. Some of the 570,000 carats of synthesised stones manufactured annually are used to cut genuine gems. Almost all cutting is now in India. Half the stones are mined in central and southern Africa, but diamonds are also found in Canada, Brazil, Russia and Australia. De Beers accounts for 40 per cent of world production and even more of the sales but Rio Tinto, BHP and others have seams and new mines are opening.

Iridium

The rarest non-radioactive metal is iridium, found in meteorites. Gold is four times more common but iridium remains cheaper despite its price soaring from $93 an ounce in 2003 to $760 now. Only 100,000 ounces of the white metal are mined each year, usually as a by-product of nickel or copper. The largest reserves are in South Africa but Russia, Canada and South America mine it too. Anglo American is a producer and Johnson Matthey has a long history of refining this member of the platinum family.

Iridium is second only to osmium in density so an ounce is small. It is hard but brittle and thus is often used as powder by makers of semi-conductors and spark plugs that need a metal unaffected by corrosion.

Palm oil

A third of all foods contain palm oil but it is also used for soap, napalm and biodiesels. Increased demand took its price over $1,000 a ton last week – a 27-month peak – after a 50 per cent increase during 2009. It forms the largest part of the vegetable oil market with 48 million tons produced last year, mainly in Indonesia and Malaysia, but Colombia and Africa are big producers and consumers too.

Potash

The rising demand for food means higher consumption of fertilisers, and that has forced up the price of potash. After a decade in which the potash price crept from $100 a ton to $200, it shot above $600 in 2008 before tumbling as the recession trimmed farmers' ability to invest in their land. However, with the price of wheat and other crops soaring this year, potash has bounced back above $300 and is forecast to exceed $500.

Potassium salts were used for centuries for bleaching, soap and glass-making, and could be extracted from wood ashes. In the 1940s, vast underground reserves were found in Saskatchewan, Canada, however, and deep mines were dug to create the business that BHP Billiton now wants to buy.

A dozen other countries, including Russia and Brazil, produce potash but Canada accounts for almost a third of the 36 million tons produced each year, 93 per cent of which becomes fertiliser.

Rare earth metals

Gadolinite, cerium, thulium, lithium and the other 13 rare earth metals are not actually all that rare. But almost all Western mines were mothballed in the 1990s because cheap Chinese labour undercut them. Now that China accounts for 97 per cent of output, it has imposed export controls that have caused prices to rocket.

The metals are used in computers, magnetic motors, X-rays, lasers and mobile phones as well as in the batteries used in the Toyota Prius. Demand is forecast to keep rising by 8 to 10 per cent a year.

China produced 135,000 tons of these metals in 2009 but has cut this year's export quota despite protests from the US and Japan. It is also closing unlicensed Chinese mines. China has only 30 per cent of world reserves of these metals but while Canada and the US are reopening old mines, that takes time.

Rhodium

The metal that money buys least of is rhodium. A troy ounce costs $2,450, well down on the $10,000 briefly reached two years ago because rhodium is bought by car companies, and the collapse in sales reduced demand for the silvery-white mineral. Catalytic converters account for 80 per cent of the metal consumed, but it is also used to measure flux levels in nuclear reactors and it makes a good coating for cheaper metals. It is also used in making TV screens and jewellery.

Anglo American, BHP Billiton and other companies produce 25 tons a year with South Africa and Russian the main exporters, but North America is a producer too. However, an increasing amount is being recycled from the converters of old cars.

Saffron

The world's most valuable spice is made from the dried stigma of the purple saffron crocus. The flowers must be picked in autumn while open, but it takes up to 250,000 separate heads to make one pound. Iran produces 90 per cent of the world's 300 tons annual output, but Spanish saffron is sometimes regarded as the best. They grow in Britain too – Saffron Walden was a centre – and the spice is so valuable wars have been fought over it. A pound can cost $1,000.