China’s high-grade phosphate rock
reserves could be exhausted within the next fifteen years at
current consumption rates, which may lead to rising costs and a
severe loss of competitiveness in the country’s
phosphorus chemicals industry unless action is taken.
This is according to a new report by industry
information provider, China Chemicals Market (CCM), which has
analysed China’s phosphorus supply chain.
With 18.8bn tonnes of proven reserves of
phosphorite, the second-largest in the world after Morocco, it
may seem peculiar to discuss phosphorus depletion in
China.
However, a variety of problems means that only a
small percentage of these reserves can be extracted for high
profits with current technology.
The average phosphorous pentoxide
(P2O5) content of phosphorite in China is
just 17%, well below the global average of 30%
P2O5, and only 1.7bn tonnes of high-grade
(≥30% P2O5) phosphate rock remains in
the country.
|
China needs to support its
phosphate mining industry
by investing in R&D into beneficiation, according
to CCM’s report.
(Source: Yichang Municipal Pacific Chemicals Co.Ltd
phosphatefertilizer.com)
|
Most of China’s easily exploitable
deposits have already been exhausted. Only 40% of its mines are
now opencast, and many of the remaining surface mines are on
awkward, sloping terrain that makes extraction difficult.
Further, over 90% of the country’s
phosphate rock deposits contain high levels of magnesium oxide
(MgO, or magnesia), which can damage the yield and quality of
downstream products.
As a result, although China’s total
phosphorus reserves are vast, the country’s
high-quality deposits are relatively small and will run out
sooner rather than later.
At the current rate of consumption,
China’s reserves of high-grade phosphate rock will
be exhausted by 2030.
China’s phosphate
reserves
|
P2O5 content of phosphate
rock
|
Remaining reserves,
million tonnes (as of 2013)
|
Estimated year remaining reserves will be
exhausted
|
Exploitation costs, USD/t
|
30%
|
1,660
|
2030
|
|
25%-30%
|
2,255
|
2049
|
30-65
|
20%-25%
|
2,730
|
2068
|
65-85
|
15%-20%
|
6,010
|
2103
|
|
10%-15%
|
2,190
|
2114
|
|
5%-10%
|
480
|
2117
|
|
2%-5%
|
2,440
|
2127
|
|
|
Source: CCM and China
International Capital Corporation
Ltd
|
Rising extraction costs
China’s phosphorus supply chain is
therefore faced with the prospect of dramatic rises in
exploitation costs unless technology can be improved.
Switching from opencast to underground mining
inevitably leads to increased transport and labour costs, but
it is the decline in quality of China’s phosphate
rock reserves that will hit the industry
hardest.
According to CCM’s research, a
difference of just 5% in the P2O5 content
of phosphate rock can double exploitation costs – for
example, 28% P2O5 phosphate rock costs
$31/tonne on average to produce, while exploitation costs for
23% P2O5 phosphate rock are as high as
$73/tonne.
Higher taxes, labour, transport and ore costs all
contribute to this rise, but the bulk of the difference is due
to the need to process, or beneficiate, the rock to improve its
P2O5 content before it can be
used.
Table: Top 10 global phosphate
producing countries in 2014
|
Country
|
2014 Mine production (tonnes)
|
Reserves (tonnes)
|
China*
|
100,000
|
3.7m
|
Morocco and Western Sahara
|
30,000
|
50m
|
US
|
27,100
|
1.1m
|
Russia
|
10,000
|
1.3m
|
Brazil
|
6,750
|
270,000
|
Egypt
|
6,000
|
715,000
|
Jordan
|
6,000
|
1.3m
|
Tunisia
|
5,000
|
100,000
|
Iraq
|
3,600
|
430,000
|
Saudi Arabia
|
3,000
|
211,000
|
Others
|
47,550
|
7.874m
|
World total (rounded)
|
220,000
|
67m
|
|
*Production data from large
mines only
Source: US Geological Survey (USGS)
|
The beneficiation process typically used by
Chinese companies is the flotation process. China has made
great strides in refining flotation techniques in the last
decade, but the process still adds an average of $28/tonne to
the exploitation costs of 23% P2O5
phosphate rock, for example.
If current consumption trends continue, by 2030,
the majority of phosphate rock mined in China will need to be
beneficiated, and by 2049 it is possible that only low-grade
ore will remain.
As a result, introducing policies to prolong the
life of China’s high-grade deposits and lower the
exploitation costs of low-grade reserves will be a priority for
the Chinese government.
|
The Chinese government may
move to ban phosphate exports in an effort to conserve
domestic resources.
(Source: Yichang Municipal Pacific Chemicals Co.Ltd
phosphatefertilizer.com)
|
Potential consequences and how to avoid
them
Unless China can develop new techniques to make
it cheaper to extract and beneficiate its large reserves of
low-grade phosphate rock, the consequences for its phosphorus
supply chain could be severe.
The projected rises in costs associated with
switching from high-grade to low-grade phosphate rock will hurt
mining companies badly and much of the increased cost will have
to be passed on to downstream industries.
This in turn will further undermine the
competitiveness of China’s phosphate fertilisers
industry, which is already struggling in the international
market due to stiff competition from Morocco and Saudi
Arabia.
The Chinese government sees phosphorus as a
strategically important resource, so it is likely that it will
intervene over the next few years to help mining companies
manage the transition from high- to low-grade phosphate
rock.
Firstly, the government is likely to further
restrict China’s phosphate rock exports in an
effort to slow down the depletion of the country’s
high-grade reserves. The government has already succeeded in
reducing annual phosphate rock exports from 1.8m tonnes in 2008
to 350,000 tonnes in 2013 through the introduction of high
export tariffs and export quotas, but even tougher measures may
be implemented – possibly even a ban on exports.
Cost of exploiting phosphate rock
in China by P2O5 content,
$/tonne
|
|
Source: CCM and China
International Capital Corporation
Ltd
|
Moreover, the government will almost certainly move to force
mining companies to begin adapting early to an era of scarce
high-grade phosphorite. A policy to restrict mining rights in
the provinces of Hubei, Hunan, Sichuan, Guizhou and Yunnan
– where 75% of the country’s phosphorus
reserves are located – has already been implemented,
and this policy is very likely to be rolled out nationwide and
strengthened further in the medium term. Mining quotas and
mining zones may also be introduced to control the exploitation
of high-grade deposits.
On the other hand, measures to incentivise the
exploitation of low-grade phosphate rock will also be crucial.
The government is already trialling one potential solution in
Hubei – a new progressive tax on phosphate rock mining
that takes into account the P2O5 content
of the rocks being mined.
Taxes on low-grade phosphate rock have been cut
from $2.44/tonne to $1.62/tonne, while the rate for high-grade
phosphorite has increased to $9.75/tonne. However, the
difference in tax rates still does not make up for the
increased exploitation costs associated with using low-grade
phosphorus, so other incentives may also have to be
employed.
One effective tool could be support for R&D
in the mining industry, particularly for research into
improving beneficiation techniques. China has already made
progress in this area over the last decade, but beneficiation
costs are still too high and need to be reduced if Chinese
companies are to remain competitive.
Other important areas for research include new
methods to reduce electricity consumption in the yellow
phosphorus production process (currently electricity use
increases 400 kWh for every 1% drop in
P2O5 content) and mining technology to
extract phosphorite from areas that are currently difficult to
access.
The insights shared in this article were
taken from CCM’s new report into
China’s phosphorus supply chain
"China’s Phosphorus Industry Forecast", published
in March 2015.