EDITOR: | August 30th, 2016 | 5 Comments

Another price shock for phosphate?

| August 30, 2016 | 5 Comments
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We turn our attention to the global phosphate market, where market phosphate rock prices were flat throughout the second quarter of 2016. Though demand is increasing, phosphorus is regarded as a rare resource and its supply may not be able to keep pace with demand. Phosphate rock is a difficult to extract as well as a slow-forming product and cannot be produced artificially, while in addition to this phosphorus cannot be replaced by any known alternatives.

It is uncertain exactly how much time the international community has before phosphate runs out. Some speculators have indicated that we have 100 years’ worth of mineable resources, some regard this notion as nothing more than hype especially as this year we are experiencing subdued demand and excess supply despite bumper harvests at the end of 2015.

Rock phosphate, is the major source of phosphorus, and an essential element for plant and animal nutrition. It is thus used as an organic fertiliser in its raw form, and is the raw material for production of processed phosphate (or phosphatic) fertilisers, phosphoric acid and other industrial chemicals and animal-feed.

Globally, there exist more than 300 bn tonnes of phosphate resources including 67bn tonnes of mineable reserves in more than 23 countries. Currently, total global production is 200m tonnes per annum. Phosphorus is scarce also because only one-fifth of the phosphate mined specifically for food production ends up in the food eaten globally.

Phosphate rock is unevenly distributed across the globe resulting in only a small number of countries controlling the world’s remaining reserves. Morocco, China, Algeria, Syria & South Africa together control 88% of the world’s phosphate. Morocco alone controls 75% of the world’s high-quality reserves, and the Kingdom’s share is expected to increase to 80-90% in the coming decade. The sensitivity of the market to supply shocks is evident as in the 2008 phosphorus price crisis, which was spurred in part due to China placing limits on phosphorus exports.Untitled

The global phosphate markets’ supply is heavily concentrated in North Africa, with OCP, the state-owned Moroccan miner having exclusive access to almost three quarters of the world’s phosphate reserves. While Morocco claims rightful ownership of the land and phosphates of Western Sahara, this occupation is condemned by the UN and not recognised by any other nation. Many of Scandinavia’s major banks and pension funds have divested from companies importing ‘conflict phosphates’ from Western Sahara via Morocco.

All the importing countries are vulnerable to price fluctuations and supply disruptions in producing countries.

With this background in mind, it is perhaps not hard to understand why producers of phosphate globally would look to increase output given that global food production is so dependent on the fertilizer and that world reserves may be set to decline within the coming decades. At Core Consultants, our macro analysis that determines the outlook potential for commodities details five Core themes that is driving policy, decision making and market behavior. One these themes is the security of supply, notably food supply.

In this sense, Phosphate developer Avenira has signed another offtake deal for its phosphate, which it will imminently start producing from its Baobab project in Senegal. The agreement follows the offtake agreements announced in July with established international fertiliser companies Actatrade SA and Getax Agrifert DMCC. Avenira continues to engage with other parties on further offtake arrangements set to cover the balance of planned annual production, which it expects to convert into formal agreements in the near term.

In addition to this, Israel Chemicals (ICL) formed a joint venture with Yuntianhua to mine phosphate rock, while the US based Mosaic Company (MOS), which is the largest producer of phosphate globally continues to expand production capabilities. Mosaic’s key strategic investments and acquisitions include a distribution facility in Brazil as well as Paraguay and a joint venture in Saudi Arabia.

The global phosphate market remains one to keep an eye on in coming months and years, especially as the next supply side shock could trigger a massive price increase as seen in the years of the 2008 global financial crisis.


Lara Smith

Editor:

Lara has been an analyst for over ten years, starting her career as an equity analyst at Foord Asset Management and more recently as the ... <Read more about Lara Smith>


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Comments

  • BrianSJ

    http://finance.yahoo.com/news/5-stocks-still-shun-fertilizer-194707188.html has “Prices for potash (a major nutrient), which are already at their lowest levels since 2007, continue to be hurt by elevated supply. Prices of the commodity are down roughly 25% from one year ago.

    Potash prices came under pressure following the exit of the world’s largest potash maker, Uralkali Group from one of the biggest potash cartels – the Belarus Potash Company (“BPC”) – in 2013. In addition to creating an uncertain pricing environment, the cartel dissolution also led to increased competition in the potash market.

    The potash market is expected to remain oversupplied in the near future, thereby weighing on prices. Moreover, both China and India – two major potash consumers – have recently signed their potash contracts for 2016 at prices ($219 per ton and $227 per ton, respectively) that are roughly 30% lower than last year. These weak contract price levels further suggest that pricing pressure may not alleviate any time soon.”

    for MOS ” The company currently holds a Zacks Rank #5. Its earnings for the current year are expected to tumble roughly 82.4% year over year.” so the supply shocks

    August 30, 2016 - 2:03 PM

  • Alan Levy

    Yup, the fast-paced glamorous world of fertilizers!

    Nitrogen, phosphorus, potash. N-P-K
    Traditionally, the biggest bucks (revenue) have been in N.
    The best margins in K.
    And P, well um, third.

    When you talk about projects in places like Senegal … if the plan is to compete with larger, low cost, well run projects like OCP’s in Morocco, Ma’aden in Saudi, etc. probably not a good game plan. But if they can nurture the local market, and by local I mean West Africa, then they can make some good coin and do generally good things for the health and economy of the area.

    August 30, 2016 - 2:27 PM

  • Martin Bertau

    Thanks for this nice report. However, I doubt there is severe shortage of P supply. The point is the heavy metal load of primary P. In addition, there is no common understanding that the 2008 price shock is owing to export limitations. In fact this was an outcome of the financial market crisis, and as a vertically highly integrated industry, P producers were simply affected by the developments in the oil sector (which affected sulphur likewise).
    Truly, there may develop a P shortage, but this will be a shortage of P ore purities allowing for producing P at today’s price levels. A possible solution to this lies in P recycling.

    August 31, 2016 - 2:12 AM

  • Steve Mackowski

    Lara. Phosphate is all about logistics ie transport infrastructure. Both for inputs and for outputs. Who supplies that infrastructure and for how much governs the economics of which projects prosper.

    August 31, 2016 - 6:30 AM

  • BrianSJ

    https://theconversation.com/time-for-policy-action-on-global-phosphorus-security-5594 has concerns over disruption to P supply in the longer term, I think.

    September 3, 2016 - 10:31 AM

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