Rock Phosphate Reserves, China and Agrichemical Prices

4 March 2017

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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