Inside Fertilizer Analytics: Phosphate Rock, Jul. 2021

The phosphate rock market has seen structural changes in Egypt, changes in Indian market dynamics and intriguing developments around projects in Israel, Australasia and China. How have these and other factors influenced our view of the phosphate rock market?

Join Claira Lloyd - Phosphate and Phosphate Rock Research Manager, Harry Minihan - Editor, Argus Phosphates, Claudia Wlk – Deputy Editor, Argus Phosphates and Tim Cheyne - VP, Fertilizers as they start with a look at structural changes in the Egyptian market and the timely addition of two new Argus phosphate rock export price assessments from Egypt and a new import price into South East Asia. We then assess developments in the Indian phosphate rock market, looking at pricing, demand side concerns, production levels and Indian buyers moving to source phosphate rock from Algeria, Syria, Senegal and Jordan.

We review demand levels in South East Asia, liquidity issues, price increases and the factors influencing these market dynamics. We then pivot to the medium term view, analysing the intriguing situation in Israel where an ICL mine closure and significant ramp up of production in two other mines could lead to Israel to becoming a net importer of phosphate rock by 2026. We then move to a short review of projects in USA, New Zealand and French Polynesia. We review the Yangtze river protection law's impact on the phosphate rock market supply outlook. We finish with how we see phosphate rock prices developing in the mid to long term.

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Transcript

Tim: Welcome to the latest episode of the Inside Fertilizer Analytics podcast. Today, we could call the podcast inside phosphate rock markets because that's what we're going to be looking at. We'll be turning our attention to what's happening in the rock markets for the next 20 minutes, and I'm really glad to be joined by several members of our phosphates team here at Argus today.

We have Harry Minihan, who is Editor of Argus Phosphates, and he's the lead on our phosphate market desk. Then we have Claudia Wlk, Deputy Editor of Argus Phosphates. Glad to have her on the podcast as well. And finally, we have Claira Lloyd joining us again. She's from our consulting team and she leads our phosphate fertilizer research and is the Editor of our Argus Phosphate Rock Analytics. So we've got a great combination of people. Welcome everyone today.

Let's start with the current phosphate rock market because there's some things changing and going on. And I know Harry and Claudia you've recently launched some new phosphate rock price assessments, responding to some changes in the market. So could you tell us more about that, what you've done and what are the new prices are?

Claudia: Yes, indeed. Thanks very much, Tim. Well, just to give a very, very brief context, Argus has already had phosphate rock prices for quite a few years for markets like Morocco, Algeria, Jordan, and import markets like India. So we've been active there for a long time, but there was one market that was always missing and recently we managed to fill that gap, and that was Egypt.

So we've recently introduced two new export prices for phosphate rock from Egypt, and then an inport price into Southeast Asia, which is one of the key markets where phosphate rock typically goes when it comes from Egypt. Yeah. And so we've got these three new prices. They're all fairly new. We've been going for a few months now, but yeah, it's been really interesting times there.

Harry: Yeah, absolutely. Thanks, Claudia. Thanks, Tim. It's an honor to have my debut on the fertilizer podcast series for Argus. It's been pretty timely, the launch of these new prices that we've done. Claudia, I think you'll agree particularly with regards to Egypt. Maybe you could tell the listeners a little bit more about why it's been so timely and an interesting juncture in the Egyptian phosphate rock market.

Claudia: Yeah. There have been a few structural changes fairly recently in the Egyptian market. So at the end of 2018, so it has been a few years already, there was a new entity established. A new entity established called EMPHCO, the Egyptian Marketing Company for Phosphates and Fertilizers. And they have kind of centralized the marketing of phosphates, phosphate rock that is produced in Egypt.

And the idea was, you know, that they are jointly held by several of the big mining companies and then some institutions like the Egyptian Mineral Resources Authority, and like to really centralize and drive the profile of Egyptian phosphate rock that is coming out of the country. And that has been going, from what we're hearing, comparatively successfully.

And, of course, sold over 3 million tonnes of phosphate rock in 2019, then drove that to over 4 million tonnes in 2020, and has targeted new destination markets like Romania, Bulgaria, Serbia, and Poland. As I mentioned before, the main traditional destination markets for Egyptian rock would be India and Southeast Asia.

So yeah, they've been a lot of kind of ongoing developments, especially when it comes to the Indian market because when it comes to sales, going to India from Egypt, that's where EMPHCO seems to pretty much have the monopoly and really be the only entity that is authorizing sales. So yeah, that has had quite a few interesting effects. Right, Harry?

Harry: Yes, Claudia. That's a very good point. It's been really interesting to see how EMPHCO have developed sort of in a stage-by-stage process since they came into being at the end of 2018. And you're absolutely right, their focus has indeed been on India, given how important India is to the overall phosphates market, as well for both DAP and phosphate rock.

And maybe now's a good time to just sort of quickly take a look at what's happened in the Indian phosphate rock market. In terms of pricing, it has you can imagine, followed a very similar pattern to what we've seen in DAP. Finished fertilizer prices across the complex have risen substantially in the past year. DAP has been, you know, arguably leading the charge on that.
In India, prices are up 85pc in a year and phosphate rock prices have followed a very similar trajectory. Argus assesses phosphate rock prices for rock with 70pc to 72pc BPL and 68pc to 70pc BPL on the cfr side, and both those assessments are up by half on a year. And we would expect those to keep increasing in line with DAP prices.

And it's, you know, there have been a few concerns on the demand side in India, because we've had some recent data on the Indian production for April and May and it's pointing to weakened DAP production. In April, we actually had the lowest DAP production in India countrywide that we've ever had on record since we started gathering the data in 2015, which it could sort of raise some sort of doubts over how much demand is actually gonna be on the import side for phosphate rock.

But what we've seen is that domestic production has been offset by NPK production, which has sort of picked up the slack and is sort of fueling that continued demand for phosphate rock. So if you look at DAP, NP, and NPK production combined, it's actually completely in line with where it was a year ago. And we've just seen the sort of domestic production skewing much more towards that NP, NPK and away from DAP for all sorts of reasons.
There has been an interesting talking point that's come out in the market about the rising prices that we've seen out of Egypt. Obviously, I mentioned earlier that phosphate rock prices have gone up by half in a year. And some market participants have sort of begun to say that because of the pricing discipline that we're seeing out of Egypt for India, we're seeing that this is sort of leading in other origins to come into the Indian market, which, you know, hadn't necessarily been as competitive because of these higher fob levels out of Egypt.

I'm sure that's probably something to do with the discipline that we're seeing on the EMPHCO side, but what this is causing is Indian bias to slightly different origins. And we've had, you know, an increased prevalence for Algerian rock, Syrian rock, Senegalese rock, and of course, Jordanian rock, which is the largest supplier for India. So it's been really interesting to see demand patterns change as prices have increased. And some producers are sort of really preparing themselves to take full advantage of these market developments.

If you look at what JPMC and Jordan were saying in their latest annual report, they're actually targeting 6 million tonnes of phosphate rock exports this year up from four and a half million tonnes in the year before. So, clearly, India is going to be a large part of that and maybe that more aggressive strategy out of Jordan compared with higher prices out of Egypt is seeing this, you know, change in import patterns on the Indian side.
So yeah, it's a very interesting time in the phosphate rock market at the moment. Maybe now it's a good time to talk about other destination markets such as Southeast Asia, where we've recently launched a new prize for. Maybe you can tell us a little bit about how things are playing out there, Claudia.

Claudia: Yeah, very much so. So, yeah, as I mentioned before, phosphate rock in Southeast Asia, Egypt is one of the main suppliers there. And it's mainly used in the country for direct application on palm oil plantations.

So there is a lot of demand that we're seeing currently from those markets, but there hasn't been as much liquidity as one would expect for this time of year, which is on the one hand down to several logistical issues and supply issues with rock coming out of Egypt. And then on the other side, we're seeing very steep price increases that, of course, we've also seen in the finished phosphates side, but that are also tracking for phosphate rock, but that are much, much stronger on the cfr, on the import side than they are on the fob side, simply because of massive increases that recently on freight markets.

So for basically all fertilizers and most routes across the globe have just seen really, really strong increases for freight rates. And that has really, really driven up cfr prices in Southeast Asia. So in Malaysia and Indonesia, and that means that buyers are just holding back more than they normally would.

Just to give you a very brief indication of what I'm talking about, so a year ago we had the freight from the Red Sea in Egypt to Southeast Asia at like $19 per tonne very roughly, and now we're at about $50 per tonne. And I've even heard rumblings from Egypt that latest vessels have been fixed at about $60 and above. So there's been very strong increases and freight makes up a massive component of cfr levels at the moment which have now also gone up above $100 per tonne cfr from what we're hearing.

Harry: It's amazing, isn't it? Because it doesn't really seem like there's any sign of the freight market abating. That was up until March. And I know that there was a slight low at the beginning of the second quarter, maybe after ice began to melt, you know, like in the out of the Baltic ports, but it really has been incredible.

I was talking to a trader last week who specializes in phosphate rock in and around the Mediterranean. And he remarked that container freight for phosphate rock out of Egypt to Southeast Asia is now one and a half times the cost of the actual rock itself. So, you know, we are now at this really crazy, inflection point in the market where buyers are having to pay 150pc for freight of what they're actually, you know, of the product that they're actually trying to get into their ports.

And, yeah, it's a really interesting time in the fertilizer commodities market at the moment. Maybe with that, it's a good time to take a look at, you know, the medium term view of things and what our colleague Claira Lloyd has to say about things.

Tim: Yeah. Thanks, Harry. I'll step in and Claira, I know you've just recently published the latest issue of Phosphate Rock Analytics. Very timely given the market developments. So can you tell us how that went? So in particular, I'd like to ask you about supply. I know you, you need to dive into supply in each issue. Well, what's the most interesting or most notable supply development that you've picked up on during the research for the latest edition?

Claira: Yep. Thanks, Tim. And also good to be back on the podcast. So when it comes to the supply side, I think for me this time around the most interesting part is when it comes to Israel.

So ICL shut down its Zin mine at the end of last year, which has a capacity of about 2.4 million tonnes. In their company results, they sort of attributed this to initiatives to address efficiency, looking at market volatility, and also to mitigate the impact of the pandemic. But on top of this, which made it even more interesting, is that they also announced they will significantly ramp up the production operations at, their Rotem mine and their Oron mine.

So these two mines have a production capacity of 1.9 million and 2.8 million tonnes per year, respectively. And with these complete ramp-ups, we are going to see basically Israel end up exhausting the reserves at these mines in about the next four to five years. So really when we look at this, we could see by 2026, Israel becoming a net importer of rock. Unless it does bring the Zin mine back into operation, which does seem to be an option, but at the moment, there's no concrete data fixed on that possibly occurring.

Tim: Wow, that's an interesting situation. I know that obviously Israel has being in some difficult parts of political situations as well. So it must be lots of, you know, decisions to be made. But looking more broadly, can you tell us what, which other projects or particularly which other projects you've added to the firm forecast? Things would have moved to a slightly further ahead and you can now counsel on in our S and D balance?

Claira: Yeah. So to me, I think it's been the US has been pretty interesting. It's only a small project, that's in our firm balance at the moment. And it's going to be about 48,000 tonnes a year capacity when we come to 2024, which will really be for direct application. But there's two other projects that have come along, which at the moment we're holding out of the firm side of things, and both are in Florida.

One is the Bone Valley mine, which will produce about 1.2 million tonnes per year of rock. And what's interesting here is that it's using secondary recovery, which is the reprocessing of old mine tailings into high-quality rock. So 2022 is their target, but we are still keeping this out of our firm forecast at the moment, obviously because of the environmental awareness, shall we say of the new administration in the US.

And also there's another one which is called HPS2 in Bradford and Union counties. This is a bigger project again, which would be 2.4 million tonnes by 2027. And we're looking really when you look at those guys, the Mosaic target would likely be the sales because of where it is, but so far not expecting necessarily big things for this project, as they've not really made any of the permitting or environmental milestones. But to see three potential project in the US pipeline all of a sudden, it's definitely one we'll be keeping an eye on.

Tim: Yeah. Yeah. US the phosphate industry rebounding potentially, or maybe that's overstated. I wanted to ask you also about some very unusual projects you've written up and assessed in Australasia, and Asia. Tell us about those projects. They do look unusual.

Claira: Yeah. So one, first of all, we've seen a bit of a rise or a bit of continued discussion around subsea phosphate rock project, and one now has popped up in Chatham Rise in New Zealand. This would be through dredging and 1.5 million tonnes per year, with no expansions likely just because of the dredging capacities and capabilities.

These guys are looking now to 2025 for this. Originally, they were hoping earlier but again, with these subsea projects, we come across the environmental red tape and hurdles, which we are seeing more and more obviously in the phosphate rock side of things. But if this were to come online, obviously it's a huge capacity and also very, very competitive on the cost side. Not necessarily the most expensive. But the one I find I think the more unique is in French Polynesia. We actually added French Polynesia as a categorized country to rock specifically for this project.
It's got the capacity to possibly produce 250,000 tonnes a year. It was originally expected in the fourth quarter of this year, it's now been moved to the end of 2023. And again, it is the permitting issues. This is another project, but it is the restart of a previous mine that has been abandoned for a very, very long time.

And for me, I find it interesting just to see exactly where the target markets would end up with French Polynesia, not necessarily being that close in particular to any of the consuming markets when you look at its location. So yeah, a couple of unique projects coming along which might make it even more interesting as we go through on our timeline.

Tim: Yeah, French Polynesia is not really on the major dry bulk freight routes. It's not going to be the easiest to move products, but I guess the obvious point is $100 plus rock is gonna draw attention to project activity and certainly will sharpen investor interest in looking at projects again, and maybe moving them ahead on the timeline. So we look forward to keeping up to date on those projects from your future reports.

I wanted to come back to something we discussed in the last podcast on processed phosphates actually. It was to do with legislation and regulations. It was the Yangtze River protection law in China, which was having impacts on the finished phosphates market. But I was wondering what about the implications for rock? Are there implications for the phosphate rock side of things?

Claira: Most definitely. So just to remind people or to refresh that there were two main clauses which are impacting the processed phosphate side of things, and that was that no new chemical plant could be built within a kilometer of the shore bank on the tributaries of the Yangtze River.
And there was another clause which was tailing ponds couldn't be built or expanded or altered within three kilometers. So these obviously do have that relation to the processed, to the phosphate rock side of things, but there are two other things that have really happened, which will be impacting rock. One is that within the Yangtze River economic region, new mines with the capacity of below 500,000 tonnes per year are not permitted to be built. So at the moment, this for us now is going to cause us to sit down and readdress and review the status of about 960,000 tonnes of capacity at potential new mines.

These mines are themselves relatively small and obviously from 150,000 to about 300,000 tonnes capacity, but that moves a million tonnes of potentially of rock capacity out of China. And also what I think I found interesting is that ahead of this enforcement of the rules on the 1st of March, in Hubei alone, mines with under 150,000 tonnes a year of capacity had to close their doors in order for this compliance to be met more readily and easily.

So we saw 488,000 I think it was tonnes of capacity cut from our forecasting in one fell swoop. So we are potentially looking at losing 1.5 million tonnes of rock, which when you consider China and the ever stricter legislation, we're seeing being placed on rock mining, be it caps and in certain provinces because of gypsum production, be it caps in other provinces just because they do not want to see mining done to a certain level. So rock itself is capped. It is going to make China a little bit of a tougher place for the rock mining industry, be it when it comes to actual supply filling demand domestically, or be at that expansion of the sector.

Tim: Yeah. So it's quite an important change in the supply outlook for rock in China. Let's develop that more towards the overall supply demand balance. And I guess the key question is where do you think prices will hit in the future? Claudia and Harry have just taken us through how firm pricing is currently and they may see continued firmness. So what's your view on the medium-term pricing and even into the long-term? Do you think this firmness continues? What's your forecast from your latest assessment?

Claira: So, yeah, I think, well, when it comes to processed and we talked about it before, we are expecting the processed side a price correction into the next couple of years. Be it the huge capacity really of finished phosphate capacity that's coming online in a very condensed period, a post-COVID world, fingers crossed, recovery, and also demand is not growing as fast a pace as the processed phosphate production capacity will be coming.

But for rock, we've got a slightly different picture. We're seeing the rock market staying on a pretty steady, but firm trajectory. We were not expecting that price correction, and really that's for sort of two reasons. First off, there's a lot of new processed phosphate capacity coming in a very condensed period of time, which is bringing the demand. Be they, you know, Saudi with Ma'aden Phos 3, OCP with their Jorf hub, but also new capacity in Russia, Brazil, Egypt, you know, South Africa. We are seeing those projects in our firm forecast, but it's the second part of this which, I think, is really going to allow prices to remain firm.

And with these new demand projects that are coming, the supply additions are linked pretty much directly to a very few of these. So Ma'aden Phos 3 has the Al Khabra mine, OCP has its Khouribga expansion, which is going into its JPH expansions and Safi, and even Yara with its Serra do Salitre mine, which had started in Brazil in the first quarter. That will be eventually when it comes to the start of next year at the moment, feeding the Serra do Salitre finished project.

So there are these guys in Russia, in Brazil, and in Egypt who don't necessarily on top of those guys have that additional expansion capacity coming. So they will be fighting those producers that have their captive and their integrated supply for the product that they don't want and is left. So it's going to be really more of a supply-controlled market than necessarily it is now.

So for us, we are thinking that looking now really in 2026 in particular, when the end really of these firm projects come online. The rock price will be bouyed by that and boosted despite new rock capacity, but it's controlled by the consumers directly. So it's an interesting one, I think, to keep an eye on a rock and it's that slight divergence away from it necessarily following the DAP price movement.

Tim: Fascinating. So I guess expect to see some potential new activity on the junior miners side. We might see some new projects emerge based on this firmer rock outlook. And we look forward to hearing more about those from you in the future. We come to the end of our time today. So Harry, thanks. Claudia, thank you. Claira, thank you very much. Always great to talk and we will circle back in a few months time and talk about how these markets have developed, and how the new assessments are going.

Thank you for the listeners for listening to the phosphate rock podcast today. If you're a subscriber to Argus Phosphates or Argus Phosphate Rock Analytics, please go ahead and download the latest reports from Argus Direct or find them in your email. The May issue of the analytic report was published just a few weeks ago by Claira, and I can tell you, it's 54 pages of really good insights and even phosphate rock excitements so it's worth a read.

If you aren't a current subscriber, then do visit the Argus Media website for more information or contact your Argus Media account manager, and they can add these subscriptions to your accounts. But if you did enjoy the discussion today, and you'd like to hear more from our experts, then do follow or like the podcast so you get alerted to the next issue. And until next time, goodbye.