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Future is rosy for Mena phosphate producers

Phosphate mining in Morocco Reuters/Youssef Boudla
Phosphate mining in Morocco: the country holds around 70 percent of the world’s total reserves of phosphate rock
  • Morocco holds 70% of reserves
  • Saudi Arabia aggressively expanding
  • Battery technology promises new markets

With Morocco and Saudi Arabia now holding the bulk of the world’s high-quality, accessible phosphate rock reserves, the Middle East and North Africa (Mena) region is a major centre for the phosphate mining industry’s future growth, analysts say.

Morocco alone holds around 70 percent of the world’s total reserves of phosphate rock, the raw material which, when processed along with ammonia, produces the basic fertilisers that the world’s agricultural sector now largely depends on.

Both countries also have well-established processing and export downstreams, and, after turbulent times for prices and supply chains, demand for their products is only set to increase, given a combination of geopolitics, new technology, and demographic growth in Asia, South America and Africa.

“Mena is one of the most important regions for phosphates in the world,” Mauricio Fortuna, phosphates and fertilisers analyst with the commodities specialist CRU, told AGBI. “And in future, it will only become even more important.” 

Morocco’s huge resources are the preserve of OCP, a state-owned enterprise that is currently responsible for around 31 percent of the global phosphates trade.

This leading position has been strengthened by the depletion of reserves of good-quality rock elsewhere.

This depletion first hit the United States, the one-time market leader, which then passed its pole position to China. The People’s Republic currently has around 23 percent of the global phosphates trade, the US around 11 percent, according to fertiliser analyst Profercy. Now China, too, is running out of good-quality reserves. 

The invasion of Ukraine in February 2022 led to problems with supplies from Russia, another major phosphates player, which currently has around 16 percent of the global trade.

Prices of fertilisers spiked as sanctions on Moscow bit, leading Beijing to impose restrictions on Chinese exports to protect domestic supply.

“Europe, which is a major importer, could not import from Russia any more, while China cut its exports, creating a much bigger space for Mena,” Guillaume Daguerre, natural resources and commodities analyst EMEA with Fitch, told AGBI.

Saudi expansion

In tandem with these developments, Saudi Arabia has been rapidly and aggressively expanding its phosphates industry.

This centres on mining company Ma’aden, which is responsible for around 18 percent of the global trade and is majority-owned by the Saudi sovereign wealth fund PIF. 

Saudi Arabia possesses good-quality rock, while state backing for the sector’s development, a major part of the kingdom’s economic diversification plans, has provided the financing.

Saudi phosphate producers have another advantage, too: natural gas. The kingdom’s large reserves enable it to produce its own ammonia, the major ingredient in processing phosphates into fertilisers. 

“This gives it an advantage over Morocco,” said Fortuna, “which doesn’t have the natural gas resources and, indeed, has to import its ammonia – often from Saudi Arabia.”

With ammonia prices linked to natural gas prices, this was costly when global hydrocarbon prices jumped in the wake of the invasion of Ukraine.

Further Mena markets

Meanwhile, in 2020, the US, now a major importer, imposed a punitive import duty of almost 20 percent on Moroccan phosphates, after allegations of unfair subsidies. 

This gave the Saudis a chance to take market share in North America from Morocco. 

That big rise in US import duties, which is now being unwound, also gave an opportunity to another Mena phosphates player, Jordan.

While the Hashemite kingdom does not possess the resources of Morocco or Saudi Arabia, it is now among the top two global exporters of raw, unprocessed phosphate rock.

It has been able to take this position as other major players have shifted away from exporting the raw material in favour of higher value-added, domestically processed product.

Two other formerly important Mena players are Tunisia and Egypt. 

While Tunisia continues to export some rock and processed products, “Since the Arab Spring in 2011, it has struggled to return to full capacity,” says Fortuna. Egypt, meanwhile, exports mainly low-grade rock, as does Algeria.

In the past, two other Mena countries, Iraq and Syria, were significant producers of both raw phosphate rock and downstream products. Both still have substantial reserves, but remain largely outside the market, for political and security reasons.

Morocco and Saudi Arabia are both expanding capacity, with even larger shares of the world’s phosphate market in their sights.

In the kingdom, Ma’aden’s Ammonia 3 facility is ramping up to its 1.1 million tonnes per year nominal capacity, while the Phosphate 3 plant aims to give the Kingdom around a quarter of the global trade, when completed. 

Morocco’s OCP, meanwhile, is pursuing a $13 billion green investment strategy. Recognising that phosphate production requires significant amounts of both power and water, OCP is targeting 5GW of clean energy production of its own by 2027, and seawater desalination of 560 million cubic metres by 2026. 

OCP also aims to invest $7 billion in a green ammonia plant, using green hydrogen manufactured using solar power. This should help address the sector’s vulnerability to hydrocarbon import prices.

The company is also planning to produce 30,000 tons of intermediate products by 2027 for a new technology: lithium-ferro-phosphate (LFP) batteries for electric vehicles. These promise to create a whole new market area for phosphates, as the world moves ahead with the energy transition.

“In the short term,” says Daguerre, “demand for phosphates is determined by things like how the weather impacts farmers, business sentiment and so on. But in the longer term, it’s about things like demographics and yield efficiencies, all of which support future demand growth. Add in demand for LFP batteries, and you are looking at sustained long-term expansion.”

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