Global Arab Network – – Amal Hasson
While Morocco’s phosphate exports – a key revenue-earner – may have been impacted by declining commodity prices, the sector is anticipating general growth for the years ahead, with most analysts predicting a recovery in the global market by 2016. In spite of the cyclical turbulence, state-owned Office Chérifien de Phosphates (OCP) has several projects under way to expand output. Increased sales of value-added fertilisers may help offset the decline in raw commodity prices in the near future, Global Arab Network reports according to OBG.
OCP is pushing ahead with a Dh145bn (€13.05bn) investment programme to increase its production capacity and reduce costs, positioning itself well for a market recovery.
The state-owned company, which owns four mining centres and two processing plants, is aiming to double its annual capacity of phosphates between 2007 and 2017 by expanding current mines and launching new ones, with a particular focus on improving downstream activity.
The OCP investments will be partly used for constructing a phosphate cleaning plant in Merah, a 235-km pipeline between Khouribga and its Jorf site, and the opening of three new mines at the Khouribga mining site, which will expand production from 18.5m tonnes to 38m tonnes by 2020.
Higher sales of end-product fertilisers may also give some short-term relief from the commodity market slump. OCP’s fertiliser exports are projected to rise to 2.5m tonnes in 2014, from 2.3m tonnes in 2013, according to the group.
The company signed an agreement with North American potash producer PotashCorp in May to provide OCP a platform to sell its dry finished phosphate products in the US and Canada. A 10% stake in Brazilian fertiliser producer Fertilizantes Heringer that OCP bought in June for around $65m will give the company a commercial and supply foothold in South America.
New markets
OCP is also expanding its production and commercial networks in Africa, where fertiliser usage rates are some of the lowest in the world. In the past five years, several African governments have launched initiatives to boost domestic agricultural production, which should multiply fertiliser demand in the future. OCP said exports of fertilisers to Africa in the first half nearly doubled to 315,000 tonnes from 164,000 tonnes in the same period last year.
In a recent tour of West and Central Africa, OCP unveiled several major commitments to the African market that should provide it with new export markets. In February, Morocco’s King Mohammed said that OCP would launch a new fertiliser production line at its Jorf Lasfar plant at a cost of $600m that would be completely dedicated to sales on the African continent.
The unit is expected to become operational before the end of 2014 with a production capacity of 1m tonnes per year. The group also concluded a partnership agreement with Gabon’s Société Equatoriale des Mines (SEM) in March to build a joint chemical fertiliser operation, including two production units in each country, with a total investment value of $2bn.
Choppy waters
The expansion programme comes amidst a tight time for global markets. OCP, one of the world’s largest three operators by exports, said first-half revenue fell 3.6% to Dh23.1bn (€2.98bn) y-o-y and net profit slid 17.8% to Dh3.02bn (€270m). The results confirm that the global downturn in phosphate prices that began two years ago continues to weigh heavily on the industry. Phosphate rock prices have fallen to an average of $110 per tonne in September from $145 in 2013 and $185 in 2012.
The fall in export revenues will have an impact on the kingdom’s foreign currency earnings. Morocco earned Dh17.55bn (€1.58bn) from phosphate exports in the first half of 2014, a drop of 12.1% according to the Foreign Exchange Office (FEO).
Several factors have triggered the price slump in phosphate, which is mainly used to produce fertilisers. In particular, the phosphate market has been flooded by output from newer producers such as Peru and Saudi Arabia, with the latter benefitting from cheap energy inputs. Slower growth in emerging markets such as China and India since 2013 has also lowered demand. However, analysts expect global population growth and a subsequent rise in the demand for agricultural products to boost phosphate prices in 2015 – something that OCP will be well-placed to capitalise on. (OBG)
