Riyadh breaks into phosphate market

07 March 2011

With Saudi Arabia commencing phosphate production, Jordan and Morocco have new competition in the region. But with fertiliser demand growing worldwide, there should be sufficient business for all

Key fact

Maaden’s 5 million tonne-a-year phosphate mine began operations late in 2010

Source: MEED

Morocco, possessor of the world’s largest phosphate reserves, holds up a reputation as the Saudi Arabia of the ‘white gold’. Now the kingdom itself is set to emerge as a significant producer of phosphates.

On 2 March, the first ammonia shipment was loaded at Ras al-Zour port, the initial product of Saudi Arabian Mining Company’s (Maaden’s) efforts to develop its significant phosphate reserve base at Al-Jalamid in the north of the country.

We expect … further developments in Jordan, but not anywhere near the investment we are seeing in Saudi Arabia

Andy Jung, CRU

Maaden’s 5 million tonne-a-year (t/y) phosphate rock mine began operations late in 2010, representing a significant new market entrant. Through its joint venture with Saudi Basic Industries Corporation, Maaden Phosphate Company (MPC), it aims to exploit a phosphate deposit located in Al-Jalamid and utilise local natural gas and sulphur resources to manufacture the fertiliser diammonium phosphate (DAP).

Distinct advantages make Saudi Arabia a phosphate player

MPC will start manufacturing DAP in the second quarter of 2011, and the plant’s output is expected to reach 2.9 million t/y.

Although Saudi Arabia does not possess as much rock as Morocco, it has other distinct advantages that make it a potentially powerful phosphate player, namely access to low-cost sulphur and gas, which it can utilise to produce the finished fertiliser products.

Global phosphate production
(Thousand tonnes)
Morocco and Western Sahara23,00026,000
South Africa2,2402,300
Other countries8,6209,500
Source: US Geological Survey

The firm’s first shipment of 12,000 tonnes of ammonia will be exported to southeast Asian markets. Phosphate is in increasingly strong demand globally as it is used to make fertilisers, the source of higher yields in agriculture.

The Middle East and North Africa (Mena) region as a whole boasts a long phosphate seam that stretches from Mauritania in the west to Iraq in the east. Worldwide, the largest commercially recoverable reserves are located in just three countries - China, the US and Morocco/Western Sahara.

Everybody wanted to build back in 2007-08, but then the downturn happened and people ran for the hills

Andy Jung, CRU

The first ammonia shipments from Saudi Arabia, therefore, represent a potentially game changing development for the region’s minerals sector, and lays down a challenge to its neighbour Jordan. Jordan Phosphate Mines Company (JPMC) produces up to 7 million t/y of rock, making it the world’s sixth-largest phosphate producer and second-largest exporter.

Global phosphate reserves
Thousand tonnes
Morocco and Western Sahara50,000,000
South Africa1,500,000
Other countries620,000
Source: US Geological Survey

“The new phosphate plant in Saudi Arabia is in proximity to Jordan and will be competing for the same markets - that could be an issue for JPMC,” says Aram Rabadi, an analyst at Amman-based AB Invest. Jordan’s fertiliser market is highly export oriented, dominated by production from two main sources: JPMC and and Arab Potash Company. The US Geological Survey estimates Jordan’s phosphate mining production increased to 6 million tonnes in 2010 from 5.3 million tonnes in 2009.

Slow recovery for fertiliser sector

However, JPMC had been hit hard by the global downturn, seeing its production decline 15.7 per cent in 2009 as global demand for fertiliser sank.

Recovery is proving slow. In the first nine months of 2010, sales from its phosphate unit, which extracts and sells raw phosphate, dropped from JD260m ($366m) to JD234m. Net income for the first nine months dropped 37 per cent compared with the same period of 2009, to JD51m.

Although JPMC’s phosphate sales grew in South America and Europe, they decreased in Asia - by far the company’s largest market. The firm’s falling revenues highlight the challenging economic conditions facing the country’s phosphate sector - a situation made worse my the start of world-scale production in Saudi Arabia.

“We expect to see some further developments in Jordan, but not anywhere near the investment we are seeing in Saudi Arabia,” says Andy Jung, US-based phosphate sector analyst at London-based consultancy CRU.

Input costs also make the economics more complicated for JPMC, compared with Maaden. “Oil prices went up last year and JPMC has to transport the product to the export port in Aqaba, so this forms a big portion of its costs. Transport costs went up and that has eaten into their profit margins,” says Rabadi.

Nonetheless JPMC is keenly aware that it needs to compete with new entrants to the market. New exploration studies at its Al-Hassa and Al-Abiad mines show promise. The company is also forming international alliances. In 2010, it established a joint venture with Indonesia’s Petrokimia Gresik to produce 200,000 t/y of phosphoric acid, for which JPMC will supply the rock phosphate.

In a sign of Jordan’s desire to grow its phosphate industry, JPMC is investing in upgrading export infrastructure. In May 2010, it signed a deal with India’s Afcons Infrastructure to design and build a new phosphate port at Aqaba. The $240m project involves building a 4 million t/y rock terminal as well as truck unloading and handling facilities, storage facilities, pipe conveyors and other marine terminal facilities. Construction is expected to be completed by 2012.

Marketing rock is not the easiest thing to do. A tonne of DAP from one location is the same as … another

Andy Jung, CRU

Amman needs to stay ahead of the game given Maaden’s interest in a significant expansion of its phosphate activities to include the exploitation of a second major phosphate resource to supply merchant grade phosphoric acid to the fertiliser, food and animal feed industries. A feasibility study is under way on the Saudi project which would mine the Khabra deposit in the Umm Wual licence area, located 40 kilometres northeast of Turaif. The project envisages an open pit mine and a simple beneficiation process, adding close to 1.5 million t/y to Maaden’s phosphate capacity to be marketed locally and internationally.

“The feasibility study currently under way will evaluate the viability of the project to supply highly demanded phosphate intermediate products to augment Maaden’s phosphate product mix,” says Khaled Mudaifer, Maaden’s vice-president of phosphates.

Given rising global demand for food, there should be room for several more Middle Eastern phosphate producers. The conditions for expansion are becoming more favourable than in 2008-10. “It’s getting pretty spendy to build a new complex and the volatility of the last few years has hindered development,” says Jung. “Everybody wanted to build back in 2007-08, but then the 2009 downturn happened and people ran for the hills.”

Nuclear challenge for Jordan

Phosphate producers in Jordan will also have to compete with another challenge emerging from the kingdom’s uranium mining industry, the building block of a nascent nuclear sector.

Much of the uranium found in Jordan is mined in areas where phosphate rock is located and many phosphate mines contain uranium. At some point, the authorities will have to make a strategic decision as to whether to prioritise phosphate or uranium.

In Morocco, the state-owned producer Office Cherifien des Phosphates (OCP) also plans to expand production significantly. The Maghreb giant possesses half the world’s proven phosphate reserves and is the world’s third-largest producer of crude phosphate and the largest exporter, controlling 30 per cent of global phosphate exports.

Phosphate sales are the main contributor to the country’s export earnings. A report from the Rabat’s Office des Change attributes a 31 per cent rise in total Moroccan exports in 2010 to MD147.84bn ($18bn) to a near 100 per cent increase in exports of phosphates and by-products, which totalled MD112.21bn. Output from the key Khouribga deposit reached 18 million tonnes in 2010 and with prices rising strongly, OCP sees output from this 400 sq km area rising to 38 million t/y by 2018, with the opening of three more pits.

OCP has launched a E6.3bn ($8.9bn) investment programme to more than double its fertiliser production capacity by 2020. It will add four new plants at the industrial port of Jorf Lasfar by mid-2015 to increase the combined output of DAP and MAP (monoammonium phosphate) from 4 million tonnes to 9 million t/y. The long-term target is to increase OCP’s phosphate mining capacity to 50 million t/y. In 2013, it will complete the laying of an underground mineral duct system to get the phosphate to market.

Infrastructure investment to transport phosphate

Turkey’s Turkfen has begun building a pipeline through which all output will flow to the Jorf Lasfar chemicals complex, a move that promises to slash transport costs from the current $7-$9 a tonne to $1 a tonne. OCP secured a $310m loan from France in April 2010 to build a 235km phosphate slurry pipeline system.

“OCP is certainly the place where we would expect to see a lot of development going forward,” says Jung. “They are the largest producer of phosphate rock by a single company and sit on the world’s largest reserves of phosphate rock.”

The investment in domestic infrastructure will help OCP to capture more of the value added from its minerals endowment. “A lot of its strategy is about trying to capture higher margins and promote industrial development and employment. Marketing rock is not the easiest thing to do,” says Jung. “A tonne of DAP from one location is the same as a tonne of DAP from another, whereas with the rock there is quite a differentiation in the grade and the quality. Selling rock in ever increasing volumes becomes a bit tenuous the more you produce.”

Interest in phosphates is also growing in Syria and Iraq. Syrian-Qatari Holding Company (SQHC) signed a memorandum of understanding in 2009 with the Oil & Mineral Resources Ministry and the Industry Ministry to build and run a world-class phosphate fertiliser production plant.

Rehabilitation plan for Iraq mine

In Iraq, the country’s first fertiliser project got under way at Al-Qaim in 1984, converting 3.4 million t/y of phosphate into fertiliser - making the country self-sufficient in fertilisers. The Akashat mine located in the western desert includes a reserve of raw phosphate of more than 1.7 billion tonnes. So far, only an estimated 4 per cent of the reserve has been developed.

A rehabilitation plan for the Akashat plant has been proposed by the Industry Ministry to bring the plant up to target capacity. The phosphates would be used to produce fertilisers for the Chinese and Indian markets.

If Iraq can firm up the investment case, it will join an ever-expanding array of phosphate producers from the Mena region that are seeking to capture the economic benefit of rising prices, linked to the growing use of fertilisers in agriculture.

Price trends have made phosphate production a bankable proposition, even in the more marginal territories. The global spot price of phosphate rock began 2010 at about $90 a tonne and increased by the third quarter to about $150 a tonne.

CRU expects fertiliser prices to be 10 per cent higher on average this year. “The average price last year was $500 a tonne for DAP - this year we expect something more like $550 a tonne,” says Jung.

With prices driving higher, phosphate producers from Iraq to Morocco will be eager to ramp up investment and ensure growing global demand for fertilisers feeds back into greater revenues from a rock endowment that, for some Mena states, exceeds that of hydrocarbons.

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