Phosphate face-off

In the last two years, phosphate has become the poor relation to potash. Having been the primary fertiliser raw material for many years, attention from the world’s biggest miners and investment banks has, in the main, turned from phosphate to potash.

This is not to say the phosphate industry does not hold promise quite the opposite in fact.

Phosphate is the primary fertiliser mineral. It is far and away the most widely consumed as phosphoric acid in a number of downstream fertilisers and as a direct granular additive.

The figures speak for themselves: global production is 174.4m. tpa compared with 61.2m. tpa for potash while expansion activity is on a par with the burgeoning potash industry.

The phosphate industry is expereicing a significant lull in
demand however Europe’s only miner, Yara, has taken the
opportunity to improve processing at its new Finland mine
upping production to 1m. tpa. Courtesy Yara International

One of the more unattractive traits prevalent with phosphate, however, is price volatility which has come to the fore following a dramatic demand downturn in 2009. Whereas potash has bucked the price plummeting trend holding at around two thirds that of 2008 levels ($800/tonne to $450-600/tonne), phosphate’s value has headed further south.

Phosphate rock is now worth around $90/tonne when last year it was trading between $350-400/tonne.

The reason behind this price volatility comes down to the relatively high number of those mining phosphate which makes it more difficult to keep prices high in times of almost non-existent demand such as now. It is something that has characterised the industry over the last year.

The demand slump is such that the International Fertilizer Association (IFA) told IM it expects this year’s production to be “much lower” than 2008’s afore mentioned global total.

Despite this, the industry has attracted some major mining houses of late such as Vale SA, the world’s second largest miner, and Saudi Arabian Mining Co. (Ma’aden), the largest miner in the Kingdom which has decided to make phosphate a cornerstone focus along with gold and aluminum.

China: world No.1

In what may come as a surprise to some, China only emerged as the world’s leading phosphate rock producer as recently as 2007 when it overtook the USA. But since, it has mined phosphate at such a rate that it now produces nearly double that of the US industry.

The country’s present output was approaching 50m. tpa for 2008 with the bulk of product mined from the Hubei, Yunnan, and Guizhou provinces with Sichuan emerging more recently as a significant phosphate producing area. This figure, however, is expected to be slightly down for 2009.

Much of China’s phosphate industry has undergone substantial consolidation in the last three years allowing the government to closely control operations.

One of China’s leading phosphate miners is Guizhou Kailin Co Ltd which operates its new 1.5m. tpa phosphate mine in Kaiyang area of Guizhou province. The group is expected to expand output in the coming years through production from the Kaiyang Phosphorus Coal Chemical Ecological Park development which should yield 4m. tpa phosphate ore from a new mine. Construction of the mine is scheduled to begin next year.

The government induced activity has given rise to a number of new fertiliser giants which mine phosphate as only a fraction of overall activities. The leading fertiliser producer in China, and third in the world, is Kumming, Yunnan based Yunnan Yuntianhua International Chemical Co. Ltd which was born from consolidation of five chemicals/fertiliser companies.

Other major phosphate producing regions include: the Kunyang deposit in Yunnan, the Chaoyang deposit in Jiangxi, the Hubei phosphate districts of Jingzhou-Xiangyang and Yichang in Hubei; and, Guizhou’s phosphate deposits, Kaiyang and Weng’an.

Sichuan’s phosphate mining, which comprises of over 100 small to medium companies, was significantly disrupted by last year’s earthquake. The Richter Scale magnitude 8 quake devastated a 1m. tpa phosphate rock mine and two DAP fertiliser plants.

China has not been immune to the global downturn either. As a measure to encourage industry activity, China’s Ministry of Trade lifted export tariffs on phosphate rock and phosphoric acid as of 1 July 2009.

Phosphate rock is seen as a scarce resource for China. Despite hosting reserves of 2,700m. tonnes, this is thought to be barely enough to maintain the country’s demand for the next 70 years ( IM 23 June 2009: China cancels phosphate tariffs). While 70 years may suffice for some, not for China - yet another example of the country’s forward thinking.

Compared with many other commodities, China has been slow on securing fertiliser minerals which may come as a surprise considering the pressures of feeding its huge and rapidly growing population.

While China has only recently recognised the need to increase efficiency in the fertiliser sector resulting in consolidation establishing new phosphate mining projects has only taken hold over the last 5-8 years. Potash in China is still years behind phosphate in terms of production and new projects.

Over the next decade, security of all fertiliser minerals will be high on China’s priority list.

USA

Despite being knocked off the production top spot by China, the USA still produces 30m. tpa of phosphate ore and is the world’s biggest consumer of fertilisers.

The USA is home to the world’s largest phosphate miners: The Mosaic Co. (10-11m. tpa), Potash Corp. of Saskatchewan (9-10m. tpa), JR Simplot Co. (6m. tpa), CF Industries Inc. (3.5m tpa), Agrium Inc. (Nu-West Industries, Inc, 1m. tpa), and Monasato Co. (P4 Production, LLC, <1m. tpa) (see Global phosphate rock production highlights).

The vast bulk of US phosphate production is from Florida and North Carolina which account for 85% of output. Utah and Idaho contribute the remaining 15%

Florida operates seven phosphate mines: five by The Mosaic Co., one by PotashCorp and one by CF Industries.

Global phosphate exploration activity has been closely linked to the depleting resources at Florida’s existing mines which have historically been the leading source of world supply. According to Americas phosphate consultant John Sinden, companies are looking outside of the country for resources that are easier to obtain licences for.

“There is a basic long term interest in global phosphate exploration because several of the mines in Florida are close to being exhausted,” explained Sinden, “licenses for new mines are very difficult to get [because you need clearance from the] Federal Environment Protection Agency (EPA) and the state EPA.”

Phosphate’s importance to Idaho also cannot not be underestimated; the state is home to three mines operated by Agrium, JR Simplot and Monasato.

Jack Lyman, executive vice president, Idaho Mining Association told IM: “Phosphate represents the largest value of all the minerals produced in Idaho. Molybdenum will sometimes show a greater value in published reports but that is because the value listed by USGS for phosphate is of the ore only, not the value added by additional processing done in Idaho.”

“When that value is included, phosphate is far and away the most valuable mineral produced and processed in Idaho,” he added.

JR Simplot and Agrium are in the process of planning a new open pit phosphate mine in Idaho.

‘A slow year’

“It has definitely been slower this year,” explained JR Simplot Co. phosphate miner and supplier to the USA’s west and mid-west regions.

“Fall has been a little slower than expected,” Martin Hunt, vice president of mining at US Phosphate producer JR Simplot Co. told IM, “weather conditions in the Mid-West have been wet and the farmers haven’t had a chance to lay fertilisers yet.”

This slow trade in the USA has been defined by production cuts lead by Mosaic which slashed production in the summer by 2.2m. tpa. This was followed by a further cut of 500,000-1m. tpa in October 2009 in a move that is hoped to “better balance inventory levels and supply chain demands” according to the company.

The fertilising season for the USA’s agriculture sector is between September to mid November and period following winter late-February to April and Simplot remains optimistic for a pick-up in demand come spring 2010.

Battle for fertiliser takeover

An acquisition battle between Agrium Inc. and CF Industries Inc. has been the subject of much talk in 2009 in North America.

As demand continues to plummet, attentions were turned to Agrium’s takeover bid for CF Industries which gripped the interest of the fertiliser industry and financial houses alike.

The take-over is yet to materialise, however, and recently took an interesting twist.

In October, nitrogen fertiliser producer Terra Industries entered the fray after agreeing to purchase 50% of the Carseland nitrogen plant owned by Agrium. This is thought to serve two purposes: to block an unsolicited takeover bid for Terra from CF; and, to clear antitrust regulations that have threatened to scupper any Agrium/CF deal.

The battle to be the next fertiliser behemoth is set to rumble into 2010.

North Africa/Middle East

North Africa is the hub of international exports of phosphate rock because both the USA and China predominately consumer their product domestically. Its substantial role in industry is highlighted by the fact that in 2008 Morocco, Tunisia, Egypt, Jordan, and Syria contributed to 80% of international trade.

In addition, Saudi Arabia will soon significantly boost production in the region once Ma’aden’s 12m. tpa mine is operational next year (see Focus on Ma’aden).

Morocco

Morocco is by far the leading producer in Africa and the Middle East with a 24-30,000 tpa output in 2008 only bettered by China and the USA.

The north-west African country is home Office Cherifien des Phosphates (OCP) which accounts for virtually all phosphate extraction in the country, except for a few bespoke miners.

OCP operates four major mining areas Khouribga, Ben Guerir, Boucraa Laayoune, and Youssoufia and six mines totalling 25.7m. tpa phosphate ore.

The vast majority of ore is used internally at OCP’s two fertiliser complexes, Safi and Jorf Lasfar, which both contribute to an overall fertiliser output of 4m. tpa the second biggest in the world sandwiched between The Mosaic Co. of the USA which has a 9m. tpa capacity and Russia’s PhosAgro AG third with 3m.tpa.

Safi produces over 1.5m. tpa phosphoric acid, 500,000 tpa TSP, 250,000 tpa NPK, and 400,000 tpa MAP. Jorf Lasfar, located on the Moroccan east-coast, outputs 2m. tpa phosphoric acid from 7m. tpa ore mainly supplied by the Khouribga mines.

Khouribga which operates the world’s biggest open pit phosphate mine will soon be home to three new mines bringing the total to six in the area. The initial phosphate capacity will be raised by 17.5m. tpa, bringing Khouribga production to 36.5m. tpa. The openings of all three mines will be staggered between 2012 and 2016.

OCP will also open a mine in south Ben Guerir in 2014, producing 3m. tpa ( IM February 2009,p.6: OCP phosphates hub).

Should all plans go accordingly, OCP will be mining 45-50m. tpa phosphate from 2016 onwards an astonishing figure which matches today’s total Chinese output.

In another positive development for Morocco, fertiliser giant Bunge Ltd has founded the government j-v, Bunge Maroc Phosphore which is set to produce 375,000 tpa phosphoric acid.


Leading integrated phosphate fertiliser producers





Tunisia

Tunisia’s 7-8m. tpa output is courtesy of state miner Compagnie des Phosphates de Gafsa (CPG) which operates ten mines and produces TSP, DAP, nitrate fertiliser, and phosphoric acid through subsidiary Groupe Chimique Tunisien.

The operations came about through a government forced merger in the mid-1990s to capitalise on the value of phosphate ore beneficiation rather than just exporting the raw material.

GCT has recently struck a j-v with India’s Gujarat Fertilizer to establish a 330,000 tpa phosphoric acid plant under the new company Tunisian Indian Fertilizers SA.

Meanwhile, Tunisia is looking to establish a new phosphate operation in Sra Ouertane from which India’s National Mineral Development Co. pulled out of in October 2009. Sra Ouertane has estimated reserves of 1,000m. tonnes of phosphate ore and is the country’s second largest deposit.

India’s Rashtriya Chemicals and Fertilizers Ltd is the latest to show interest in a deal which is estimated to top $4,000m. Brazilian mining outfit Vale SA have also been linked with the deposit.


Is demand for phosphate recession proof?

Jordan, Syria, Egypt

Jordan Phosphate Mines Co. is the country’s only phosphate miner contributing 4-6m. tpa to the industry from its Al-Abiad, the Al-Hassa, and the Eshidiya mines. This feeds the country’s phosphate fertiliser production is presently just shy of 1m. tpa while production of phosphoric acid is roughly half of this.

Phosphate is one of Jordan’s biggest businesses together with potash, nitrates and petroleum production.

Similar to Jordan, phosphate production is the biggest industry by value for Syria. The country mines just under 4m. tpa through government run General Company for Phosphates and Mines through the Ash Sharqiya and the Khunayfis mines.

Infrastructure issues are presently hampering expansion of Syria’s phosphate industry which could feasibly double production in a short space of time should the rail link between the Homs governorates and Tartous port be upgraded.

Unlike Jordan and Syria, the fortunes of Egypt’s phosphate industry are not closely tied to oil and gas sector. El Nasr Mining Co. is the country’s largest producer with an output of 1m. tpa. Although the US Geological Survey (USGS) estimates phosphate rock output from Egypt to be close to 3.5m. tpa, this figure is expected to be much lower for 2009.

Russia

PhosAgro controls phosphate ore mining and fertiliser production in Russia.

The state-owed group has been mining the Khibiny apatite-nepheline deposits through OJSC Apatit for the last 75 years in the town of Apatity in Murmansk oblast, north-west Russia.

Its phosphate ore is processed at another subsidiary LLC Balakovskyie Mineralnyie Udobrenia (BMU) which produces MAP, DAP, and NPK fertilisers among others. The group has a total fertiliser production capacity of 2.4m. tpa, the fourth largest integrated producer in the world.

OJSC Kovdorsky Mining and Processing Factory is Russia’s other miner of phosphate rock.

Medium producers by volume

South America

Bunge Fertilizantes Fostatados SA (4-5.5m. tpa) and Copebras (2.2m. tpa) are the only producers of phosphate in Brazil.

Bunge also produces 2.2m. tpa of SSP nearly a third of Brazil’s output 6.2m. through its fertiliser subsidiary, Bunge Fertilizantes, together with 600,000 tpa DCP, nearly half of Brazil’s total production.

Smaller phosphate tonnages also come from Venezuela (around 200,000 tpa and dwindling), and minor tonnages, under 40,000 tpa, produced from Columbia, Chile and Peru for local markets.

But Peru’s phosphate industry is about to be transformed by the huge $479m. investment by Vale SA into the Bay—var deposit which will become one of the world’s biggest mines in three years with a 7.9m. tpa capacity (see Focus on Vale’s Bay—var development).

This will take Peru from phosphate obscurity into one of the world’s significant producers, but also double the capacity of the continent which is well known for being one of the largest consumers of fertiliser.

Vietnam

In South East Asia, Vietnam is one of the leading phosphate producing countries after it more than doubled production of the phosphorous bearing group of minerals, apatite from 1m. tpa in 2005 to 2.5m. tpa in 2008. Apatite expansions are continuing particularly with the North Nhac Son project of the Lao Cai apatite mine which will see its capacity rise from 2m. tpa to 4.5m. tpa next year.

Fertiliser production in Vietnam reached 2.650m. tonnes in 2008 and is one of the country’s major industries along with petrochemicals. The country has nearly 300 operational fertiliser plants producing nearly 1m. tpa SSP and 4.2m. tpa of NPK.

Dinh Vu DAP fertiliser plant in Hai Phong City is the receiver of most of the ore for its new 330,000 tpa DPA production, which has began to produce in March 2009 and requires 600,000 tpa apatite ore at 33% P₂O₅.

Despite its substantial fertiliser production, Vietnam is still a net importer particularly of urea products.

Europe

Yara International is Europe’s only phosphate miner following the acquisition of the Siilinjarvi mine in Finland from Kemira Oyj is 2008.

The Norway based agricultural chemicals producer is expanding capacity at the mine from 850,000 to 1m. tpa through processing improvements which will be compete by the end of the year. The mine supplies the feed for the group’s fertiliser production.

Around half of Yara’s phosphate is for NPK production while the other 50% will supply direct phosphate fertilisers. While it sells 60% of its product to Europe, 20% to the Middle East and 20% to the USA.

The 150,000 tonne expansion at the mine will replace purchased phosphate tonnages.

Europe is Yara’s major market for NPK and phosphate feed whereas Asia is the second biggest consumer of its NPK.

As is the case for most, Yara has felt the demand pinch. The group’s NPK sales are lower this year than 2008 as potash producers a key component in the product are “holding back demand” with high prices.

“Phosphate deliveries have been substantially down from last autumn,” Torgeir Kvidal, Yara’s head of investor relations explained to IM, “they have lately picked up however.”

In comparison to the potash market, phosphate has been “more realistically priced”, Kvidal believes this is already reaping some rewards over its counterpart.

“In contrast to potash, the phosphate prices more reflect a competitive and still slightly oversupplied market since demand has not fully picked up, while potash demand is still hampered by historical high prices [enforced] by producers holding back on sales,” he said.

Elsewhere

Outside of the main production hubs, Australia’s phosphate resources have been the subject of much speculation and activity in the last year. There are a number of companies looking to add to Incitec Pivot’s phosphate production in North West Queensland.

Projects in the region include: Minemakers Ltd looking to exploit Australia’s largest undeveloped phosphate rock deposit in Wonarah; Legend Internationals Holdings Inc. at the Lady Annie deposit in north Queensland; and Ravensdown Fertiliser Co-operative Ltd in south New Zealand.

In Sub-Sahara Africa, Mali is one of the more promising areas with Oklo Uranium Ltd and Great Quest Metal Ltd exploring the country’s phosphate potential. Meanwhile, Minemakers is also looking at mining seabed phosphate sediments off the coast of Namibia.

Industry stand-off

Does the lack of fertiliser purchasing mean food is not being produced?

Of course fertiliser is a crop enhancer and not a necessity. However if farmers choose to forego fertiliser application, resulting yields are significantly smaller and the soil rapidly becomes malnourished but crops are still produced. This has been the story of the year so far.

As fertiliser mineral prices in particular potash remain high farmers will not want to purchase fertiliser. It is a product of simple economics that has been compounded by the drying up of much financial support.

The soil does build up some credits of nutrients for example potash is held in the subsurface for longer than nitrogen and phosphate. However, many analysts believe that stocks of nutrients held in the soil have expired thus the stand off between mineral producers and users cannot last for much longer.

European phosphate producer, Yara International, like many producers in the industry, remains hopeful.

“Farmers can not continue to cut fertiliser application for the long-term without substantial negative effects on yields. The difficult question is for how long they can continue to cut,” Torgeir Kvidal explained to IM.

“This will depend on grain prices, fertiliser prices and the yield effects expected by the farmers,” he added.

This is a point that Michel Prud’Homme of the IFA echoed.

“It is unlikely famers have any stocks left,” Prud’Homme explained to IM, “stocks at end users decreased massively in 2009, the pipeline distribution has dried up and [as a result] just in time deliveries and hand-to-mouth sales are prevailing.”

“Harvests have used the available nutrient reserves in soil and received adequate yields this year, but this negative balance cannot sustain crop yield and quality,” he added.

The severity of the present situation is unprecedented and trying to forecast or predict industry trends for the short to mid term is a dangerous game, but long term demand is all but assured.

US producer Mosaic probably said it best: “Recessions do not make people less hungry.”


Phosphate rock at a glance

Phosphate rock (27-35% P₂O₅) is the feedstock for phosphate fertilisers and phosphoric acid, with small supply as slag from the steel industry (10-20% P₂O₅).

The ore is processed into fertiliser using acid: sulphuric acid produces MAP, DAP, SSP and complex fertilisers; phosphoric acid results in TSP; and nitric acid produces a slurry NP for use as a feed in complex fertilisers.

Global production 2008: 174.4m. tpa
Production hotspots (% global output): China (29%), USA (18.5%), Morocco (16.7%), Russia (6.5%)
Phosphate uses: Fertilisers* 85-90%, Other**10%

*incl. phosphoric acid
** Including: industrial uses (chemical reagent, electro polishing, catalyst); medical uses (Pharmaceuticals, water treatment, dental); and, retail uses (soap, carbonated drinks, animal feed)


Phosphate fertilisers

World phosphate rock capacity (m. tonnes)




World fertiliser consumption (m. tonnes)




Phosphate progress in Saudi Arabia
Focus on Ma’aden

Project name: Al Jalamid (mine) and Ras Az Zawr (fertiliser plant)
Developer: a 70:30 j-v between Ma’aden Phosphate Co. and Saudi Basic Industries Corp. (SABIC)
Holding companies: Saudi Arabian Mining Co. (Ma’aden) and SABIC

Location: Saudi Arabia: Al Jalamid (central-north), and Ras Az Zawr Eastern province (north-east coast)

Mine details: Ma’aden is looking to extract 233m. tonnes of the 534m. tonne resource. Supporting infrastructure will include: power plant, potable water production, treatment and distribution, roads and telecommunications. The Al Jalamid mine and beneficiation plant will span 50km².

Plant details: phosphate concentrate from Al Jalamid will be transported by rail to Ras Az Zawr for processing into DAP and phosphoric acid. Ma’aden expects to produce 3m. tpa granular DAP, 400,000 tpa ammonia, and 200,000 tonnes excess phosphoric acid for sales to the domestic market.

Progress report: in September 2009 83% of the project was complete

Start-up target: October 2010

Full capacity target: H1 2011

Development budget: $3,500m.

Phosphate progress in Peru
Focus on Vale’s Bay—var development

Project name: Bay—var Project
Developer: Vale SA
Mission: development of Bay—var phosphate deposit into a initial 3.9m. tpa mine
Location: Piura, north Peru

Phase one: construction of 3.9m. tpa mine and a phosphate concentrating plant, a 40 km access road, a 5 km overland conveyor, a drying and storage area, and a port with capacity to ship 7.9m. tpa.

Phase two: to ramp operations up to 7.3m. tpa

Mine start-up date: H2 2010
Development budget: $479m.


Prices: phosphate v potash

One of the most effective ways to analyse phosphate pricing is to compare it to its potassium counterpart, potash. They share the same end market but exhibit quite differing trends when it comes to pricing.

Owing to the comparative abundance of producers, phosphate’s price is more volatile. Potash is produced from a handful of miners in Canada and Europe which can tightly control the supply lines to the market if demand drops, production is cut and less available potash, together with the bullish attitude of producers, keeps prices artificially high.

Phosphate does not have this luxury. When demand falls as in 2009, the price goes with it. Phosphate fell from 350-400/tonne at peak times in 2008 to $90/tonne now. Potash has fallen from $800/tonne to $450-550/tonne in the same period. Demand patterns for both are very similar, but the price difference is stark.

“The potash industry tends to hold its prices at a higher benchmark than phosphate producers,” explained one North America phosphate producer.

Benchmark prices since 2005

Global phosphate rock production highlights