Still a global player in the potash, phosphate and fertiliser market

As a key pillar of Jordan’s economy, the potash and phosphate extraction industry and its related fertiliser business has faced challenging times recently. While global output and competition has hiked, power and water costs in the kingdom have also been on the rise, affecting profitability and competitiveness. These challenges have also had their upsides, as the sector looks to install better cost management while broadening the base of its energy suppliers.

With the market expected to pick up in the years ahead, these measures should stand the industry in good stead for the future. Given the organic global growth in demand for fertilisers – the end-product of much potash and phosphate extraction – the current margin squeeze is seen by most as a temporary phenomenon and nothing new, as the industry has faced such over- and then under-supply environments before and come away from them stronger.

Facts & Figures

Jordan is amongst the world’s top producers of potash, phosphate rock and bromine, and has also produced significant quantities of calcium carbonate, kaolin, limestone, silica sand and zeolitic tuff.

About 95% of global potash production – which is a name given to a range of potassium compounds, most often potassium chloride – goes into the agricultural sector, mainly for use in fertilisers. Almost every country in the world has a demand for it – yet Jordan is one of only 12 countries worldwide that produces it.

Phosphate, meanwhile, is also a key ingredient for the production of agricultural fertilisers, with about 90% of global output of phosphate rock going to this end. Around 40 countries produce phosphates – the US, China and Morocco being the top three – and East Asia and North America are the biggest consumers.

Demand for both raw materials and fertilisers in general is continuously rising due to a series of organic drivers. First, there is global population growth, driving up basic demand for food. Then there is global economic growth, which has led to increasing demand for nutrition per capita. This also impacts a third driver, the shifting diet of the global population towards more expensive, higher-protein foods, such as meat, meaning that animal feed is also a growth product. A fourth driver is increased demand for biofuels, which once again feeds into increased demand for grains, oil seeds and oil palm, all of which require increasingly more fertilisers to grow. Finally, global urbanisation has also meant the growth of cities at the expense of agricultural land; thus the need for greater productivity in agriculture – and more demand for fertilisers.

Jordan has thus benefitted from some fundamental trends in the global economy. Preliminary figures from the Central Bank of Jordan show production of potash in 2013 at 1.73m tonnes, while 5.27m tonnes of phosphates were also produced. Exports of the former were valued at JD420m ($593.23m) that year, while the latter saw exports of some JD267m ($377.15m). Most of the country’s production goes into three main types of fertilisers – diammonium phosphate, complex fertiliser NPK and potassium sulphate.

Leaders

Two major companies dominate the sector, the Arab Potash Company (APOT) and the Jordan Phosphate Mines Company (JPMC). APOT, the only potash producer in Jordan, has a government concession that runs until 2058 to operate in the Dead Sea region. In 2003 the company was partly privatised, with half the government’s 52.4% stake sold to Canada’s Potash Corporation. APOT has undergone something of a restructuring since, but maintains a series of other subsidiaries. These are, Arab Fertilisers and Chemicals Industries, a joint venture between APOT and Kemira GrowHow from Finland; the Nippon Jordan Fertilisers Company, a joint venture with JPMC and Mitsubishi; Numeira, which produces some 20,000 tonnes a year of mixed salts and 5000 tonnes a year of Dead Sea mud; and the Jordan Bromine Company (JBC), which produces bromine and bromine derivatives. JBC is equally split between APOT and Albemarle Holdings of the US.

According to its annual report, APOT’s 2013 net profit was JD130.6m ($184.49m). This was a figure down on previous years, as was overall output, which was 1.8m tonnes in 2012 and 2.3m tonnes in 2011. The reasons for the decline stem from the global story of potash production. While in 2003 world supply was greater than demand, with potash selling for about $120-150 a tonne, “in about 2004 demand began catching up with supply,” Brent E Heimann, general manager of APOT, told OBG. “Prices started to rise, up to $700-800 a tonne in 2008, and firms began to expand capacity.”

Changing Market

The global downturn in 2008 saw a fall in demand, as farmers cut costs by reducing their use of fertilisers. Expansion projects had started while prices were still high, however, and continued to run, progressively coming on-stream even though the price per tonne was falling. Competition was also heightened in 2013 by a split in Uralkali, the Russian-Belorussian joint marketing company responsible for about a third of global potash supply. They then began marketing separately, expanding the number of competitors for a lower-priced, more highly supplied market.

APOT responded to these changed circumstances by concentrating on reducing its costs. This had not been an issue until then, as the company had a reputation as one of the world’s lowest-cost producers. Yet, 2008 also marked the start of a period of higher electricity costs in Jordan, with which the company has had to cope.

APOT has done this in two ways. First, by securing its own gas deal with US company Nobel, which extracts gas from offshore Israel. In quarter one of 2016 the company will likely start using the gas to fuel its own power plant. At the same time it is pursuing a renewable energy strategy, with solar power the likely target.

Meanwhile, JPMC was also privatised in 2006 with Kamil Holdings, owned by the Brunei Investment Authority, and the Jordanian Finance Ministry the two largest shareholders. JPMC experienced similar constraints to APOT, with declining global demand for fertilisers after the global economic downturn, along with scheduled capacity expansion projects leading to oversupply.

Nonetheless, according to JPMC’s 2013 annual report, total phosphate sales were 5.1m tonnes that year, with 3.2m tonnes of this exported. These figures were both down on 2012, when 6.2m tonnes was sold, 4.3m tonnes of this abroad; yet net profit of JD2.6m ($3.67m) was still recorded. The company also boosted wages, despite increasing costs and pressured margins.

Challenges

There remains the challenge of increasing competition in international markets. Bilateral agreements with other producer countries may provide a way forward, with Jordan recently renewing a potash agreement with China in light of this challenge.

The sector also has to look to renewable energy as a way to cut bills, while seeking more secure energy supplies. In this way the sector echoes some of the challenges facing the kingdom as a whole. Despite these difficulties, the sector continues to be a major global player in the potash, phosphate and fertiliser market, a status it is likely to maintain for many years to come.