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Post by James Wellstead, Resource Reporter
By James Wellstead — Exclusive to Potash Investing News
Despite receiving less press than theoil and gasindustry, the MENA(Middle East and North Africa) region is a major player in the phosphate market, with more than 80 percent of the world’s phosphate reserves.
Controlled predominantly by state-run organizations, many of these countries could soon become game changers in world phosphate and fertilizer supply. However, many of these same countries must first adapt to the seismic political transitions and challenges miring mineral development in the region.
In a highly vertically-integrated industry where individual companies mine, beneficiate, process, and market phosphate ore and fertilizer products, the shake up of state-run phosphate firms as a result of 2011′s Arab Spring has been most directly seen in labor and wage relations between workers and companies within impacted countries.
While Credit Suisse analysts recently projected that, phosphate rock prices will ease in 2012 as some of the Middle Eastern capacity returns as well as on the “price pullback in the downstream phosphate products.” Political uncertainties surrounding labor relations will require close attention in 2012 if the full impact of political change on MENA state-run phosphate operations is to be understood.
Morocco
With an estimated 50 billion tons of reserves, or 75 percent of world reserves, it is no surprise that phosphate represents the largest share of Morocco’s economy. State-run monopoly phosphate producer OCP intends to invest roughly US $8.8 billion in the next ten years to increase phosphate ore production by 20 million tonnes to 47 million tonnes per year by 2020. As a result, Morocco is set to become a major phosphate supplier to African and Asian economies facing rising fertilizer demand over the next decade.
While eluding most of the political turmoil experienced in other Arab Spring protests, Morocco is facing employment and wealth equity concerns. Over the past month, members of the National Union of Phosphate Labourers have undertaken strikes and protests over salaries and social benefits. The protesters have gone so far as to threaten collective suicides, but to date have not disrupted production. Representatives for the unionhave said that their actions represent “a warning” to OCP in hopes “to fix the problem.”
While tensions are not yet overheated, the desperation in many increasingly poor mining cities like Safi and Ben Guerir could lead to greater problems if not adequately handled by government officials.
Tunisia
The initial flash point for Arab Spring protests, Tunisia has suffered the biggest fallout from the 2011 protests and political transitions. State-run Gafsa Phosphate Company (CPG) recently reported significant losses due to political turmoil. Annual phosphate sales fell by more than half to below 3 million tons, while extracted phosphate fell by nearly 10 million tons to below 3 million in 2011.
The financial results were also severe. CPG recently announced that it was unable to honor its commitments with customers such as India, Poland, and Iran.
Thirteen months after initial protests, increased political freedom and the absence of government and military repression appear unlikely to offer Tunisia immediate post-revolt economic returns. Currently, political protests over the lack of sufficient political restructuring and increasing unemployment rates threaten to immobilize phosphate exports from the world’s seventh largest phosphate producing country well into 2012.
Jordan
A three day strike that disrupted operations atJordan Phosphate Mines Company has reportedly been resolved as workers have accepted plans to improve working conditions offered by the Jordanian Ministry of Industry. While Jordan is one of the least significantly impacted of the MENA region phosphate producers, it is currently undergoing domestic criticisms, primarily from company employees, following the recent privatization of Jordan Phosphate.
Producing approximately 7 million tonnes of phosrock annually, Jordan Phosphate is the sixth largest phosrock producer and the third largest exporter of phosphate globally. Seen as one of the safest investment jurisdictions in the MENA region, foreign investment constitutes approximately 37 percent of Jordan Phosphate’s ownership.
Syria
In the grips of what has been described as a civil war, Syria and its phosphate industry are currently facing the most severe conditions in the region. With transportation and production disruptions from protests, Syria’s 1.8 billion ton phosphate reserves and sixth largest national industry is now also preparing for severe export sanctions internationally. Last week, European Union governments agreed, in principle, to ban trade of Syrian phosphate exports; Europe imports roughly 40 percent of Syria’s phosphate exports.
Until recently, Syria’s phosphate industry had been enjoying strong growth, with more than US $320 million a year in sales in 2010. Mining operations are dominated by the state-run General Company for Phosphate and Mines (GECOPHAM), but mineral processing is also controlled by the General Fertilizers Company (GFC), which produces phosphoric acid and triple superphosphate (TSP) fertilizer. However, underinvestment in its refining capacity means that the majority of Syrian phosrock production is exported.
Securities Disclosure: I, James Wellstead, hold no direct investment interest in any company mentioned in this article.
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