Saudi Arabia’s city of phosphate

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A new phosphate mining and processing mega-project is set to improve Saudi Arabia’s access to the global fertiliser market, but a potential excess of international supply may extend the period before the multi-billion scheme turns a profit.

On February 4, Saudi officials signed a series of contracts to set in motion the development of a city dedicated to the mining, processing and trading of phosphate-based products. The Waad Al Shamal project, to be located near the town of Turaif, close to the border with Jordan, foresees the creation of an entire industrial city, linked with international markets by rail connections to a port on the Gulf, as well as to the nearby extensive Al Khabra phosphate deposits.

Among the contracts sealed were agreements for the provision of roads and rail lines, a water treatment plant and other utilities, infrastructure and housing, with total investments valued at $9.6bn.

At the centre of the project is an integrated phosphates complex, which is being developed as a joint venture between the Saudi Arabian Mining Company (Ma’aden) (60%), US-based Mosaic Company (25%) and Saudi Basic Industries Corporation (15%).

Also in February, Ma’aden awarded several engineering and procurement contracts (EPCs) for processing facilities at the complex, including a 4.9m tonne per year sulphuric acid plant, a 1.5m tonne per year phosphoric acid plant and a 5.3m tonne per year ore beneficiation plant. The combined value of the EPCs was estimated at $3.7bn.

Natural progression downstream

According to Mohammed Al Jasser, the minister of economy and planning, the move from being a primary producer of minerals to becoming one of the world’s largest downstream processors was a natural progression, one already taken in the petrochemicals sector.

“We started out exporting crude oil, then we moved into refining, then we moved into gathering gas and creating a petrochemical industry. Then we moved into large-scale mining. The benefit of it is that it has large downstream industries,” he told media.

The industrial city, like others at Jubail and Yanbu that focus on the production of petrochemicals, are part of the government’s efforts to diversify the economy away from a direct dependence on hydrocarbons and to create employment and investment opportunities.

Supply and demand on the rise

The launch of the Waad Al Shamal project comes at a time when phosphate demand is on the rise, with the UN’s Food and Agriculture Organisation (FAO) estimating that global requirements for phosphate-based fertilisers will increase by 2% year-on-year through to 2016. Just under 60% of all demand will come from Asia, where usage is forecast to grow by 32% between 2012 and 2016. Located astride the major shipping routes to Asia, Saudi Arabia will be well-placed to supply this expanding market.

While demand is rising, so too is supply, with the FAO forecasting that global output will increase at a rate of 3% annually over the next three years. By 2016, supply could exceed demand by 7-8%, the UN organisation said. With the fertiliser plant linked to Waad Al Shamal due to come on-line in late 2016, that imbalance could be augmented, potentially pushing down global prices, at least in the shorter term.

There is also strong competition developing in the marketplace, with Morocco striving to parlay its significant deposits of phosphate, estimated at 60% or more of identified global reserves, into a large-scale industry. The North African country is working to boost both mining output and downstream production, with the government saying it wants to capture 40% of the international market by 2020.

Though the supply imbalance and potential pressure on global prices for phosphate may give some investors cause to pause before committing to involvement in the Waad Al Shamal development, the longer-term prospects for the project are strong. Many current phosphate producers are set to see production decline within 20 years or so, but Saudi Arabia has some of the world’s largest deposits of phosphate, with estimates putting its reserves at 3bn tonnes or more. Though not all of these deposits are easily accessible or commercially viable, the Kingdom will likely be mining phosphate long after many other countries are tapped out.

Added to this is the fact is that Saudi Arabia, unlike some other producers such as Jordan or even Morocco, has the funds at hand to develop the infrastructure and logistical support needed to underpin such a venture.

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