Elsevier

Science of The Total Environment

Volume 542, Part B, 15 January 2016, Pages 1008-1012
Science of The Total Environment

Phosphate rock costs, prices and resources interaction

https://doi.org/10.1016/j.scitotenv.2015.08.045Get rights and content

Highlights

  • There were two price spikes in the phosphate rock market, in 1975 and in 2008.

  • Information on mining costs used to discuss how costs and prices interact.

  • Industry cash production costs have been fairly stable.

  • Future market price spikes likely with consequent impact on food prices.

  • Higher mine production costs will eventually promote recycling.

Abstract

This article gives the author's views and opinions as someone who has spent his working life analyzing the international phosphate sector as an independent consultant. His career spanned two price hike events in the mid-1970's and in 2008, both of which sparked considerable popular and academic interest concerning adequacy of phosphate rock resources, the impact of rising mining costs and the ability of mankind to feed future populations. An analysis of phosphate rock production costs derived from two major industry studies performed in 1983 and 2013 shows that in nominal terms, global average cash production costs increased by 27% to $38 per tonne fob mine in the 30 year period. In real terms, the global average cost of production has fallen. Despite the lack of upward pressure from increasing costs, phosphate rock market prices have shown two major spikes in the 30 years to 2013, with periods of less volatility in between. These price spike events can be seen to be related to the escalating investment cost required by new mine capacity, and as such can be expected to be repeated in future. As such, phosphate rock price volatility is likely to have more impact on food prices than rising phosphate rock production costs. However, as mining costs rise, recycling of P will also become increasingly driven by economics rather than legislation.

Introduction

There has been much debate in recent years as to if and when mankind is likely to ever to face phosphorus (P) supply constraints as a result of phosphate rock (PR) resource limitations. The implications of a PR supply-driven constraint are immense, given the irreplaceable nature of P in biological processes. In particular, a supply-driven fall in production would imply hugely increased PR production costs and, as a result, vastly inflated price levels. This would undoubtedly increase sharply the number of farmers who can't afford nutrients to fertilize their soils. Even today, amidst it seems a plentiful supply of PR, farmer access to P nutrient with which to grow food varies widely across the globe. In some areas, farmers are currently able to afford to use more fertilizer through direct and indirect subsidies whilst others, just because they happen to live in landlocked countries with no local PR production, find transport and handling costs put fertilizer beyond their means. Just as we live in a world of hunger whilst producing enough food to feed everyone on the planet, we also live in a world where producers of PR can fulfill all demand requirements, yet many farmers continue to struggle to grow crops through inequitable access to fertilizer nutrients (Chart 1, Chart 2).

So as we debate the rate of use of PR resources and the degree of urgency to recycle and cut P losses, it is imperative that we do not lose sight of the need also to develop the means of improving access to P as a nutrient for all farmers globally.

Section snippets

Production costs relatively stable — market prices less so

In the foreseeable future, I believe that it is not PR production cost escalations we need to plan for, but significant market price fluctuations. There is an economic incentive for PR producers to minimize production costs. According to studies performed by industry experts, average PR cash production costs (excluding the cost of capital) have fallen in real terms in the last 30 years.

Calculations show that the average cost of mining PR globally has increased by less than general inflation in

Production cost impact on market prices

Cash production costs (when added to logistic and other costs) provide a theoretical low-end price limit below which a producer will begin to lose money. In theory, this provides a progressive brake on PR supply volumes as PR prices fall, with the higher cost producers coming under pressure first. (History has shown us that this is by no means a perfect mechanism, however).

In contrast, there is no immediate upper limit to PR price levels when the market is short of product. Prices can escalate

Impact on food prices

The small increase in PR production costs (in nominal terms) that we have seen in the last 3 decades, I believe, would not in itself generate any upward pressure on food prices. However, a 6–8-fold spike in PR prices is potentially significant, particularly as both of the PR price spikes seen in the last 30 years were accompanied by price escalation in other sectors, energy, freights, sulphur, ammonia, etc. that, combined did put significant upward pressure on global food price levels.

In order to

Reserves/resources — longevity

Overall, the global PR reserve/resource that can be recovered for use at some point in time is an unknown quantity, as is the level of demand for mined product going forward. The recent JDC plant construction in Florida, which is commercializing the relatively new Improved Hard Process, has shown that today's tailings pile is tomorrow's reserve, given new technology

The PR industry has been accused by some of complacency over the issue of future resources. It is true that most companies work on

Recycling and losses

Unlike energy commodities, we don't consume the P we mine, we dissipate it, mainly into the oceans where biogenic processes concentrate the P minerals once more over geological time. It is the long time-scale of this process that creates a break in what would otherwise be a closed P cycle. There are potentially any number of routes through as yet unimagined technologies that could reduce this gap, but from today's perspective, directly harvesting P from seawater seems a tenuous hope on which to

References (7)

  • CRU International

    Phosphate rock cost report

  • CRU International

    Phosphate rock market outlook (quarterly)

  • IFA, Production and International Trade Committee

    Annual Phosphate Rock Statistics 1970–2013

There are more references available in the full text version of this article.

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