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The Global Phosphate Supply Market: Risky and Getting Riskier

An MBA student team in my supply market intelligence class  this week presented their supply market intelligence study on phosphate production.  One of the key points was the volatility of Morocco as the major supplier of phosphate.  Based on current reserves and production trends, Morocco will play a very important role in the world of phosphate in the future. By 2100, many countries will have run out of reserves. Therefore, the world will be mainly relying on a single country, Morocco, which is forecast to produce 80-90% of global phosphate demand through the year 2030.  Other global reserves will continue to shrink during this period.   Other regional players such as Algeria, China, Jordan, Syria, Iraq, and South Africa are minor players.  The region is under the rule of King Mohammed VI, and is a virtual monopoly run by OCP, the country’s largest state-owned company which produces almost 80% of the world’s phosphate.

Phosphate prices spiked in 2008 started a movement towards recycling phosphate – but when prices came down, the trend went down somewhat.  But as prices are going up there is renewed interest in diverse sources of phosphate.  In 2030, global demand will exceed supply.  Morocco will need to significantly ramp up production by 2017 to be able to meet this demand curve.  Other countries could ramp up production in time to meet demand – but the burden will fall on Morocco.  They have decided to invest about $5B into the Morocco region over the next ten years, but the capability might not be there in 20 years to increase the output.  Re-using phosphate and water will become more important.  PotashCorp imports phosphate rock the Western Sahara via the government of Morocco. According to the United Nations Western Sahara is a territory illegally occupied by Morocco. PotashCorp, among other companies, has been criticized for helping fund this occupation by buying Western Saharan resources from Morocco

Biofuels are another important element in the equation.  Biofuels are important inputs, and there have been large plantings of corn in the US.  And in 2011 for the first time the major demand for corn was biofuels, not feedstocks for animals.  Biofuels are driving up the demand for phosphate fertilizers.  In 2008, prices spiked for phosphate due to the fact that there were a lot of policies and incentives for companies to get tax breaks to use more biomass elements, which drove up prices.  Many companies are driving tax incentives in 2008, and use of biofuels increased, as policies have been put in place for private companies to use biomass products.  That is part of the reason you are seeing increased elements.

China is becoming a net importer of phosphate, and have imposed 150% export tariffs on exports of phosphate.  Sinofert, China’s state-owned phosphate company, has tried to buy out companies such as Potash of Saskatchewan, and is seen as the best link to OCP, the largest state run company for phosphate manufacturing in Morocco.  BHP and  Sinofert have both tried to buy Potash of Saskatchewan, one of the only public companies that has a relationship with OCP as their major supplier.  They ran out of mining capabilities in the US, and have a public relationship.  BHP tried to acquire them because of the relationship, but received a lot of backlash due to a country with a Western Sahara issue. Sinofert has also been trying to buy local companies.

There will also need to be better processes to refine phosphate.  There are many impurities such as traces of arsenic in organophosphate fertilizers, but no one is going out there to address these issues.  Bayer Crop Science banned the selling of organophosphates for that region, a directive form its board.  A local professor at NC State  in agriculture noted research is starting to look at getting plants to grow in soils with lower phosphate contents.  So there are also changes in the way that the eventual reserves may be altered to make crops more efficient, and allow plants to grow in these climes.  This will be a major factor in demand.  Chris Gibson, one of the students on the team, noted that “…even after 15 weeks of studying phosphate, we still haven’t come up with a clear picture of what the demand and supply picture will be for phosphate going forward!”  This is clearly a situation where supply risk and market intelligence will be critical for managing costs and supply risks in this global market.