China adapts to ‘new normal’ of dwindling high grade phosphate reserves

By IM Staff
Published: Monday, 27 April 2015

The decline in the amount of mineable high grade phosphate rock in China has prompted the country’s government to look at new ways of conserving its resources, which have included export quotas, cuts to domestic taxes and processing innovation – but more will need to be done to protect the industry from becoming uncompetitive in the next decade.

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.

china1 

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.

china2 

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 

China3 

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.