Phosphate Raw Materials: A market update and projections for 2018
Hello, and welcome to episode fifteen of the Down to Agribusiness podcast. My name is William Purchase, I’m the key account manager here at Fertecon, and I’m joined today by Alberto Persona, our phosphate analyst.
Thank you, Will, and thanks everyone for joining us today.
So, Alberto, if we jump right in, we’re here to discuss phosphate raw materials. First of all, what is it exactly that we’re talking about?
Yes, so whenever we talk about phosphates, we have an idea that we’re talking about products like fertilizers, or additives to our food that we might read in the labels when we buy stuff at the supermarket. In most cases, it all comes from phosphate rock, and that’s a mineral that is mined in these mines that contain various forms. However, most phosphate rock is further processed in phosphoric acid, either with the wet process, or with other alternative processes using various chemicals to produce this intermediate component. That is also a sizeable component of international trade, and it’s a market that has its own interesting dynamics.
We also refer to elemental phosphorous, that is perhaps a smaller component of the overall phosphate scene, but it still is very important in some economies, and things are going on there, so it’s always worth giving them a mention.
Okay, excellent, thank you. How big is the market for phosphate raw materials?
So, generally speaking, when we talk about phosphate mining, we are talking about a bulk commodity produced around 200 million tonnes each year on a global scale. However, the international market, the trading market for phosphate rock itself is much, much smaller. It’s something around the 30 million pounds mark every year. This does not include domestic trade of phosphate rack, which is particularly big in China. It’s something like fifteen million tonnes within China alone.
So, we have about 30 million tonnes for exports, we have fifteen million tonnes for merchant sales in China, and when we are talking about phosphoric acid, we are talking of around 5 million tonnes expressed as P2O5, which is a common measurement unit in these markets.
Okay, so we’re talking about a market which is relatively specialised here and, from what you say, possibly decreasing in the long-term. Why the interest then?
Well, yes, when we say decreasing in the long-term, it’s particularly for what concerns trade. It should be noted that phosphate rock, whether consumed directly by the companies that produce it, or whether sold internationally, is used roughly speaking for the same purpose. It’s used primarily for the fertilizers, it’s used in the production of animal feed phosphates, it’s used in the production of industrial-grade phosphates of food additives, as we said. That is the bit that makes it interesting in itself. Whenever you buy a consumer product, chances are that phosphate was involved at some point in the value chain. If you look at the labels, as I was saying before, you’ll find phosphates in your toothpaste, you’ll find phosphate in your Coca-Cola, you’ll find phosphate in your food. Even your car manufacturer could include some phosphoric acid along the way.
So, it’s a market that is really a bit everywhere, and it’s interesting because of that, sort of, very tangible element to it. Also, there are things going on. It’s a very active market. Perhaps the size is not as big as the market for other large commodities like copper or iron ore, however, we’re talking about something where there is an enormous amount of joint ventures being signed, mergers and acquisitions by large-scale chemical companies worldwide, crossing regions starting to experience some south-to-south trade - which is one of the big macroeconomic topics taking the prime light in the news these days.
We have policy changes in the European Union, we have the re-emergence of China as an importer of phosphate rock, which has caused all sort of questions in the marketplace. There are junior mining projects in Africa. Africa is a booming story, it’s a booming market for downstream products and also it is blessed with raw materials. So, all in all, it’s particularly dynamic, it’s global, and it’s evolving.
Okay, excellent, thank you. Talking about current events, what are your thoughts about the recent announcements about phosphoric acid prices in India?
Well, that took me by surprise, personally. Just for the audience reference, we are talking about the largest import market for phosphoric acid. In India, phosphoric acid is primarily used for fertilizer manufacture. Since this is a raw material for fertilizer manufacture, one would expect the buyer to be, sort of, constrained in how much they pay for this raw material, and the constraint would be can they make money on the sales of the products that they make? Interestingly, some rumours – yet unconfirmed – have started mentioning that Indian buyers accepted an increase in phosphoric acid prices even though this would suggest a degree of losses at current fertilizer price levels, which begs all sorts of questions. Will prices indeed adjust upwards? Will the Indian government increase the subsidy rate to, sort of, absorb part of this market effect? And indeed the increase in price is well justified.
Production costs for phosphoric acid have skyrocketed in the last three months, with sulphur prices almost doubling-, actually, even more than doubling in just a period of two months. It was interesting, we expected perhaps something a little bit less than the increase that seems to be transpiring in the market. There is a very big supply story here, and this is really telling of how tight the market is for the years to come.
When I say the market is tight now, the market is perhaps not set to remain tight as there are new producers that want to try and join the fray and enjoy these higher prices. Whenever there is a high price in a commodity, you can be sure someone will try and step in and gain a little bit of that cake.
Okay, thank you Alberto. If we were to look at more long-term trends, what would you say is the biggest market-changer at the moment?
Well, Indian subsidies and subsidies worldwide generally speaking will have a very strong role, particularly on the phosphoric market. As I said, India is about half of total imports, so any developments in policy in that country will definitely play a strong role. Actually, we will discuss this a little bit more in detail during the upcoming FAI conference, which will be in Delhi at the beginning of December. Fertecon will present a paper there and we’ll try and delve more into the nitty-gritty details of what this recent increase in prices means and what are the reasons behind it.
Other changes can involve regulation elsewhere. For example, the European Commission just decided to suggest, at least, a much more strict limit on cadmium levels in fertilizers. So, that will also change the trade patterns quite significantly.
I think what everyone wants to know, Alberto, what are your projections for 2018?
Well, if I were to leave you with one thing, most contracts will likely be finalized for the first half of 2018 at the FAI conference that I mentioned. Therefore, the market will be perhaps a bit less eventful up until April or May 2018. What I do expect is for Egypt to start trading prime spot in the news, and for Tunisia as well to be one of the key players. These are two extremely big phosphate producers. They are both producers that have perhaps been not exploiting fully their natural resources.
Egypt is trying to come in the market with new fertilizer capacity with new fertilizer capacity, with new exports of phosphoric acid. Tunisia has a lot of unutilized capacity that they would eventually bring on stream after a few years of social unrest and limited production. So, we are seeing the emergence of players which are perhaps not as big as OCP in Morocco, or as Maaden in Saudi Arabia. Nevertheless, as this market for raw materials is relatively smaller in size, even a tiny bit can make a big change.
So, Alberto, how can our listeners stay up-to-date with developments in the phosphate raw materials market?
Well, my suggestion would be to get in touch. Fertecon has launched a new product called the Phosphate Raw Materials Outlook. That, I think, is perhaps the best way to remain up-to-date. It addresses the issues that we have discussed pretty much hands-on.
For those that are listening on iTunes, there is a link in the episode description. You can also access more information through the episode 15 webpage where you can also get in touch with us. We’re always happy to share information and experience, and to start a productive exchange.
Thank you very much, Alberto.
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