In The Balance

Since the turn of the century, North America’s competitive position has dramatically weakened; in 2000, it was the world’s largest DAP exporter, but has since been surpassed by China, Saudi Arabia and Morocco. Its average annual DAP exports have fallen by 5 million t over this period to less than 2 million t in 2016. The main driver for this shift has been the decline of its recoverable domestic phosphate rock reserves, and a structural increase in the value of the merchant rock imports it has sourced to make up this shortfall. The result has been a decade long rationalisation in processed phosphate production capacity as US producers have closed non-integrated assets (MissPhos) or shuttered integrated assets where rock mines have reached the end of their useful life (Plant City). The threat is close to existential as single-nutrient phosphate companies face having to leave the phosphate market completely (MissPhos) or look at investing offshore in strategic non-US assets (Mosaic Bayovar/Ma’aden), given developing future North American assets is prohibitively costly.

In China, the last two decades have seen a state-backed push for phosphate self-sufficiency that overshot the mark and developed a significant exportable surplus of processed phosphates. Trade policy was used to create a market distorting export tariff that would boost domestic availability and partially decouple Chinese fertilizer markets from international pricing when domestic farmers were buying fertilizers. This state-backed surplus helped to oversupply the global phosphate market as global consumption growth began to lag global investment in new processed phosphate capacity. The Chinese government’s initial support for the fertilizer sector (indeed, more generally, the entire domestic commodity sector) initially propped up loss making assets through the recent post-2012 global commodities downturn. These policies are consigned to the past now, and China has begun taking a more market-based approach to allocating its domestic resources. This means no export tariff and a withdrawal of state-support from the domestic phosphate industry. China, with its significant exportable surplus, is the world’s marginal supplier and the country is expected to rationalise this surplus away over the next five years.

Expansions in low-cost MENA regions (OCP and Ma’aden) will exacerbate this trend in China and add to the pressure on North American producers. Fortunately, China has a diverse production base and should have enough low cost supply to maintain its self-sufficiency. And Mosaic has invested wisely, and it's 25% position in the Ma'aden Wa'ad al Shamal project in Saudi Arabia should act as a hedge against the slow decline of the US phosphate industry.

This is an article written for World Fertilizer's March 2018 issue and abridged for the website. Subscribers can read the full issue by signing in. Non-subscribers can access a preview of the issue here.

Read the article online at: https://www.worldfertilizer.com/phosphates/09032018/in-the-balance/