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Take a look at the agricultural commodities markets, and most predict a bearish outlook for rock phosphate prices. Dicalcium and monocalcium phosphate markets are generally seen as over-supplied, and there is a great deal of talk of plant closures, especially in Europe and the Far East.

Which is why it may come as a surprise to read that PhosAgro, the world’s third largest monocalcium phosphate processor, is considering expanding their phosphate processing operations.

Take a look at some of the evidence. This includes PhosAgro’s Chief Executive, Andrey Guryev, speaking to the industry journal Agropages in October 2016, when he hinted that prices may be on the up. What he said was, “Phosphate producers [in China] will be forced to start cutting production soon, helping prices to find a floor.”

Guryev also told Reuters on 27/1/2017, that, “As one of the lowest-cost producers in the world the company [PhosAgro] plans to keep increasing output beyond 2017 by 5-10% a year.”

Similarly, the journal Agrimoney, on 26/1/2017, quoted a Raymond James report which stated that, “‘Phosphate prices were up due to better balance in China, where suppliers have shown increased discipline, focusing more on the domestic market,’ and reducing exports.”

Yet again, Agrimoney quoted a PotashCorp report on 7/2/2017, which stated that, the phosphate market was restructuring – “especially in China” and that, “had helped stabilise producer margins.”

Furthermore, PhosAgro released a press release in early January 2017, stating, “The Company‘s strategic development goals in the coming years will remain production capacity growth and increased sales through expanded presence in priority markets of Russia/CIS, Europe and Latin America, as well as other countries with favourable pricing.” It continues to add that, “PhosAgro‘s plans through 2020 focus on developing the Group’s mineral base and expansion of beneficiation capacities at Apatit, [as well as] modernising sulphuric and wet-process phosphoric acid production facilities.”

With H1 profits for 2016 reported to have, “increased by 30% to RUB 36.1 billion ($514 million),” with revenues also up, “by 9% to RUB 102 billion ($1,452 million).” The company clearly has the assets for expansion, as well as the know-how essential for the specialized animal feed market.

So maybe PhosAgro is planning to expand, which markets would it target? The second surprise in this article is that its goal may be to increase production in Spain.

Why Expand Monocalcium Phosphate Production in Spain?

PhosAgro are not alone in looking to Spain (as an alternative to China and India) for rock phosphate processing facility expansion. While at first this may seem a somewhat random choice, closer examination makes the suggestion rather more logical.

The Iberian peninsula holds a stable economy, with a skilled workforce, and EU membership that grants access to a vast meat eating market. Plus its animal livestock numbers are growing rapidly, as a USDA report from October 2016 states, “Spain’s cattle and beef production in 2015 shows a rebound in production after several years following a downward trend. It is mainly due to the strong demand of live animals from third countries such as Lebanon, Libya and Algeria, reasonable feed costs and better profitability margins. Spanish beef exports also experienced strong growth due to competitive prices.”

But the expansion is not only in cattle farming, for as the industry journal Pig Progress explains, “Spain has overtaken Germany as the country with the largest pig herd in the European Union (EU). The Spanish pig sector has grown strongly over the last few years and for now there is no end to this growth.”

But perhaps most significantly, potential Spanish monocalcium phosphate processing plants in Seville would be only a 21 hour truck journey from the rock phosphate mines in Bou Craa, Western Sahara. While a secure shipping route, that would take advantage of the rock phosphate conveyor belt, would take only a few days sailing.

While the possibility of expansion in Spain is perhaps no more than speculation, it is hard to deny PhosAgro’s ability and intentions for growth, with Guryev speaking optimistically of the chance for increased production.

Reuters on 27/1/2017, reports him saying, “We expect China’s inefficient plants to close. And because it will lead to certain shortages, their big enterprises will divert their deliveries towards the domestic market.” Adding that, “PhosAgro [will] develop its own distribution and trading in Europe and Latin America to further boost direct sales to clients from the current rate of 70%.”

Look at the evidence again; expectations of reduced Chinese phosphate processing capacity; fear of supply security to rock phosphate mines in the Middle East; PhosAgro’s stated intention for expansion; Spain’s relative closeness to Western Sahara; and Spain’s growing livestock numbers.

Given all these factors, does it really sound so crazy to expect production growth of Spanish monocalcium phosphate sometime soon?

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The supply of rock phosphate has not always been certain, and it is this risk that has led to market instability, price volatility and caution over fertilizer and animal feed production levels. A fact acknowledged by the EU, when it added rock phosphate to its list of ‘critical materials’, which currently includes only 20 global commodities.

Fortunately, the planet still has sufficient phosphate reserves to match current demand. A fact supported by Pedro Sanchez, director of the Agriculture and Food Security Center at the Earth Institute, who claims that, “Once every decade, in my long 50-year career, people say we are going to run out of phosphorus. Each time this is disproven. All the most reliable estimates show that we have enough phosphate rock resources to last between 300 and 400 more years.”

Similarly, a recent analysis published in the Yale University journal Yale Environment 360 confirms that, “The world is not about to run out of phosphate.” But it also continues, by warning that, “Demand is rising, most of the best reserves are gone, and those that remain are in just a handful of countries.” Adding that, “Dana Cordell of Linkoping University in Sweden, who runs an academic group called the Global Phosphorus Research Initiative, says we could hit ‘peak phosphorus’ production by around 2030.”

Worryingly, and accurately, the author concludes that, “Already, like other key commodities with once-dominant sources running low, the price of phosphate is starting to yo-yo alarmingly. But there are no new sources of phosphate. We continue to mine the rock — or we starve.”

But this begs the question, for such a necessary product, with ample reserves, where are phosphate prices heading?

A recent analysis of rock phostphate markets by Renee Cho of the Earth Institute at Columbia University, concluded that there were many problems for phosphate processors. These included, “… the decreasing quality of reserves, the growing global population, increased meat and dairy consumption (which require more fertilized grain for feed), wastage along the food chain, new technologies, deposit discoveries and improvements in agricultural efficiency and the recycling of phosphorus.”

Furthermore, she adds that, “climate change will affect the demand for phosphorus because agriculture will bear the brunt of changing weather patterns. Most experts agree, however, that the quality and accessibility of currently available phosphate rock reserves are declining, and the costs to mine, refine, store and transport them are rising.”

It is this last factor, transportation costs, that is seen by many as the tipping point in the rock phosphate market. An economic situation where unstable oil prices, coupled with unstable rock phosphate supplies may lead to a perfect storm in the market for vital fertilizer and animal feed products. A storm that may lead to price spikes similar to those of 2008.

The problem of transporting rock phosphate to animal feed markets is a point acknowledged in a recent report by the British parliament, which noted that, “In 2008, the price of phosphate rock increased by 800% in one year. Although the price fell sharply in late 2008, the phosphate rock price has still not returned to pre-event values. A combination of factors caused the prices to rise sharply in 2008, including elevated oil prices made it more expensive to move and process the rock.”

To avoid the challenges, and costs, of shipping phosphate supplies and agrichemical products around the world, many fertilizer and animal feed producers have looked to the emerging markets for expansion, and on many levels this makes sense. The classic example is China, which has both rock phosphate deposits, and a growing population, which is becoming more accustomed to the taste of meat.

This is a point raised by agricultural industry consultants, Agribusiness Intelligence, when they state that, “The use of phosphates plays an increasingly strategic and fast-growing role in animal feed and nutrition, particularly in China and other emerging markets, where meat and livestock consumption is rising on economic growth and demand from the middle classes.”

But this seemingly ideal situation has its own problems. There is a great deal of competition in the Far East, with Lomon, Chanhen, and SinoChem among the largest companies fighting for market share. While many new companies that hoped to expand dicalcium and monocalcium phosphate facilities are now struggling. Today, it is generally acknowledged that the market has over capacity.

There is also the added risk that the Chinese government might restrict the phosphate processing industry by putting political interests before business interests. An example of such action was when Beijing introduced a 135% export tax on fertilizer in order to protect domestic markets. This impacted global markets and helped fuel the 2008 rock phosphate price leap. Monocalcium phosphate manufacturers hoping to increase exports will prefer not to have such extreme interference from governments, and will look for more stable economies for expansion wherever possible.

Given that commodities markets are generally bearish for phosphate prices, it is little wonder that many Chinese phosphate processors are considering closing down, or are refocusing their sales solely on the predicted growth in Chinese agriculture. A point highlighted by the industry journal, Agrimoney when it noted the reductions in phosphate production on 7/2/2017, saying that, “Mosaic highlighted the ‘lower phosphate and potash prices’, which have forced the group, like many peers, into cutbacks.”

However, there is at least one producer of fertilizer and animal feed stock who is far more bullish about the future; PhosAgro. As Andrei Guryev, PhosAgro’s Chief Executive told CNBC on 27/1/2017, “We expect China’s inefficient plants to close. And because it will lead to certain shortages, their big enterprises will divert their deliveries towards the domestic market.”Adding that, “PhosAgro would develop its own distribution and trading in Europe and Latin America to further boost direct sales to clients from the current rate of 70%. As one of the lowest-cost producers in the world the company [PhosAgro] plans to keep increasing output beyond 2017 by 5-10% a year.”

This flies in the face of most opinion of a retraction in the markets, and so places the phosphate industry at somewhat of a crossroads. While some of the big players are making cutbacks, and commodity brokers are noting further price drops in fertilizer and animal feed stock raw materials, PhosAgro, one of the largest agrichemical producers in the world, is planning on growth and expansion. This is based on a calculated belief that dicalcium and monocalcium phosphate prices are to rise.

Only time will tell if the market is on the road to recovery. But given that food consumption is almost certain to grow, and that rock phosphate supplies seem generally stable for the foreseeable future, it may be that the rock phosphate processing industry is finally getting on an even keel.

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For years, monocalcium phosphate manufacturers and traders have been struggling with an unsettled market, that has seen prices rise and fall quicker than a Moroccan miner’s, rock phosphate pick axe.

While global demand means that today’s phosphate extractors are more likely to operate a bucket crane and conveyor belt than a pick axe, it still leaves a lot of guesswork on prices for animal feed producers. Phosphate traders are particularly nervous of the current wave of Al Qaeda attacks in North West Africa, while the UK‘s Foreign Office advises, “against all travel” to parts of Western Sahara, and a “high threat from terrorism in Morocco.”

This is a point raised by the agricultural market analysts at Agribusiness Intelligence, when they state that, “A grand total of 82% of phosphate rock reserves are located in North Africa and the Middle East. The political instability in these regions could lead to disruption in the supply of rock phosphate in the short term and also in the future.” However, they continue, by adding that, “the inherent availability of rock phosphate is not an issue.”

Perhaps more worrying though, for animal feed suppliers and farmers is that the analysts also state, “As there is a predicted expansion in demands for phosphate an important question is whether [problems of supply] accompanied by a ‘peak phosphorus’ event, might occur any time soon.”

Given the strategic importance of rock phosphate, it is unlikely that the G8 would allow ISIS to overthrow the Kingdom of Morocco anytime soon. But there are many other factors for MCP manufacturers to consider when setting their animal feed additive prices.

Naturally, production levels of poultry, pork, beef, milk and eggs, play a significant part in determining phosphate additive prices. Many have noted the growth in meat consumption in the Far East and developing world. For example, the USDA reports that, “China is exhibiting the largest increase in meat consumption at 10.1 million tons by 2025/26, followed by India at 4 million tons.”

This growth is commonly attributed to a richer developing world, as a recent report by business consultants IHS, explains, “Calcium phosphate consumption has been growing in developing countries in part as a result of increased disposable income [leading to] increased consumption of meat.”

This in turn, has led to many animal feed manufacturers to focus on these regions for their growth. China and Brazil, for example make up the heart of feed phosphate production. A fact supported by data from PotashCorp, which states that, “China is the world’s largest producer of feed phosphates accounting for approximately 39% of global production. The US and Brazil follow with approximately 14% and 9% of global production respectively.” This is due in large part to China being, “…the largest consumer of feed phosphates, accounting for 36% of global consumption. North America and South America consume 12% and 15% of global feed phosphate respectively.”

However, while the growing meat markets in China and India are great news for rock phosphate traders, it is Europe’s meat consumption decline that has some animal feed manufacturers worrying. According to IHS, Europe accounts for 26% of the MCP global market, so any fall in meat consumption there is likely to play badly for animal feed manufacturers.

So why then is Phosagro, “one of the world’s leading producers of phosphate-based fertilisers”, whose “core line of business” includes “high-grade phosphate rock (P2O5>35.7%), and also feed phosphates”, be interested in expanding anywhere in Europe?

The reason is that some parts of the continent are showing signs of growing animal feed markets that are bucking other regional trends. For example, Spanish and Portuguese livestock farming is an expanding business, and that can only mean good news for MCP manufacturers located on the Iberian Peninsula.

As a USDA report from October 2016 states, “Spain’s cattle and beef production in 2015 shows a rebound in production after several years following a downward trend. It is mainly due to the strong demand of live animals from third countries such as Lebanon, Libya and Algeria, reasonable feed costs and better profitability margins. Spanish beef exports also experienced strong growth due to competitive prices.”

But the expansion is not only in cattle farming, for as the industry journal Pig Progress explains, “Spain has overtaken Germany as the country with the largest pig herd in the European Union (EU). The Spanish pig sector has grown strongly over the last few years and for now there is no end to this growth.”

While the article continues to state that, “Despite Spain having the most pigs, Germany is the country producing the most pigmeat.” It also gives a reason for the differing figures, explaining that, “Germany’s carcass weight is a lot higher than Spain’s.”

With so many pigs producing much less bacon than other producers, there is a clear demand for animal feed nutrients to increase pork production and profitability.

But there is another reason for Phosagro’s interest in expansion, and that is the belief that phosphate prices are about to increase.

“I believe the [phosphate] market is in the process of bottoming out,” said Phosagro Chief executive Andrey Guryev when explaining the company’s position to the industry journal Agropages. “We might see production curtailments, especially in phosphates, relatively soon and in turn that should drive prices higher.”

With much of the data and analysis pointing to an up-swing in monocalcium phosphate prices, insight like that, from the head of one of the top agrichemical companies in the world, needs to be taken seriously. In fact, shouldn’t Guryev’s opinion, coupled with a growing livestock herd in a mature Iberian market, make every animal feed supplier look to Spain and Portugal for growth?

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