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The Forgotten Commodity Shortage
April 18, 2008
Its price has quadrupled in the last year. It is essential to our way of life. The lack of it has almost directly caused food riots. China just overtook the US in the last few years in mining it. Leading industry researchers say the shortage will not be over until 2011 or 2012, at a minimum. Yet for some reason, nobody talks about the worldwide phosphate shortage.
If you’re not familiar with phosphates, they are converted to phosphoric acid, and then mostly used for fertilizer and animal feed (for details on the process, see this PDF). This may not sound as sexy as gold or platinum, but it’s definitely more critical to keeping the planet fed. The next time you hear about a food riot, chances are part of the cause is the high price of fertilizer… and thus phosphates.
What caused this massive spike in phosphate prices? It all started in 2007, with a decision from the Saudi Arabia of phosphate - Morocco. Morocco’s Office Cherifien des Phosphates decided that they were going to stop selling cheap phosphate rock to other countries to develop into finished products like fertilizer. Instead, they were going to manufacture their own finished products, and turned to a market-based approach to selling their vast reserves of phosphate rock. Prices almost immediately shot up 300%. It was the Arab oil embargo all over again, only this time the world needed the resource for food, not driving.
Nations and companies tried to quickly capitalize on their own phosphate reserves, from the United States to Saudi Arabia to Australia. However, it wasn’t enough to cover the shock of the loss of the country with the largest phosphate reserves in the world. The United States is already at a 40 year low in phosphate rock mining, and more mines are closing than opening today. China is producing almost entirely for internal consumption and contributing little to the global markets. The new production plants in Morocco are not due to come online for several more years. PotashCorp analysts think that worldwide demand for phosphate-enhanced fertilizer will not be met by supply until the Ma’aden plants in Saudia Arabia come online… in 2011 at the earliest.
This would not be a problem in many industries, where you can easily substitute silver for gold jewelry for silver or platinum jewelry, for example. However, there are no substitutes for phosphates, according to the United States Geological Survey. Crops that require phosphate-enhanced fertilizer will always require phosphate-enhanced fertilizer to grow in large enough quantity to feed the world.
If you still don’t think that phosphates are that important, or that this is just a curiosity in the commodities market, think again. Our highly developed agricultural industry, necessary to maintain the large numbers of people that live on our planet today, absolutely requires phosphates. From the Guano War, fought over phosphate-rich guano deposits, to the United States capturing over 50 islands solely for their guano deposits, the 19th century was rife with battles over the premier phosphate source of that time. When situations become dire enough again, nations will not hesitate to fight for resources that their citizens need to survive.
(image from the Florida Department of Environmental Protection)
Bill Laboon has no position in any of the companies mentioned in this article.
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3 Responses to “The Forgotten Commodity Shortage”
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[…] cocoa has seen a run-up in price over the last few years. Although not as much of a jump as phosphate, it’s more than enough to have an impact on Big Chocolate. From Callebaut to Hershey, […]
You mention Phosphates. I applaud you for noticing this. Have you ever looked into formaldehyde and its potential upcoming shortages and their ramifications?
Matt -
I have not been very concerned with any price fluctuations in formaldehyde due to its declining importance in world industry in light of its role as a probable carcinogen, and the variety of substitute chemicals available. The European Union banned formaldehyde continent-wide last year; the US and Japan have cut back on usage due to “formaldehyde-phobia.” The market has not seen any real shocks since the minor one in 2006 (due to plant problems in Canada) and its price has definitely not tracked the general surge in commodities elsewhere. In addition, as formaldehyde is produced as a byproduct of methanol production, formaldehyde prices tend to track methanol prices. Methanol futures prices have been trending lower for quite a while, and if we reasonably assume that formaldehyde prices will continue to track methanol, it’s possible to say with some confidence that there is no short- or medium-term fear of a formaldehyde shortage.
Ramifications of a surge in formaldehyde would be minor. Although prices of formaldehyde-containing items, such as plywood, would obviously increase, this is usually a small part of the total cost of manufacturing such items. Again, as the developed world continues to move closer to reducing the use of and eventually banning formaldehyde, people will soon worry as much about the price of formaldehyde as they do about the current price of tetraethyl lead.
For a good starter on formaldehyde commodity information, you can check out Global Insight’s “Economic Primer on Formaldehyde,” available here: http://www.formaldehyde.org/pdfs/GIEconomicPrimer-04-20-06.pdf
Thanks for your question,
Bill