The Zhitong Finance App learned that Changjiang Securities released a research report saying that since 2020H2, global geopolitical turmoil has occurred, energy and food prices have risen, supply restrictions, and phosphate ore has entered a long-term boom cycle. Prices are now in a high position, and the market is worried about the long-term boom of phosphate ore. The bank believes that according to production capacity planning estimates, the growth rate of global phosphate ore production in 2024/2025 is about 3.2%/4.5%. If we take into account effective supply cuts in stocks due to declining domestic and foreign phosphate grades, and possible project delays, it is expected that in 2024, global supply and demand for phosphate ore will be in a tight balance, and prosperity is expected to be maintained. The supply and demand balance may change in 2026 and beyond, and the boom may fluctuate more.

Xingfa Group's views are as follows:

The market is worried about the long-term prosperity of phosphate ore. Since 2020H2, global geopolitical turbulence, rising energy and food prices, supply restrictions, phosphate ore has entered a long-term boom cycle, and prices are now in a high position. The main consumption of phosphate ore is phosphate fertilizer, pesticides, etc., while incremental consumption includes new energy materials, etc., and demand is rising steadily. From 2001 to 2023, global phosphate ore production increased from 126 million tons to 235 million tons, a compound growth rate of 2.9%; China's phosphate ore production increased from 21 million tons to 105 million tons, with a compound growth rate of 7.6%.

What are the subsequent increments?

Factors influencing China's supply: National and local industrial policies have environmental protection or supporting requirements for the phosphate ore industry at the national level. The long-term supply of phosphate ore is related to the resource security issues of our agricultural raw materials, phosphate fertilizer and new energy materials, involving the safety of the agricultural and new energy industry chains. At the end of 2023, seven national ministries and commissions, in conjunction with the Chinese Academy of Sciences, issued the “Implementation Plan for Promoting Efficient and High-Value Utilization of Phosphorus Resources”, which emphasizes the importance attached to the level of comprehensive utilization of phosphate ore, the ability to guarantee sustainable resources, the green development of phosphorus chemicals, and the supply structure of phosphorus chemicals. The sustainability of phosphorus resource supply has risen to a high level of national strategy.

At the local level, major producing provinces have issued policies calling for green development, refined and high-end development of phosphorus chemicals, and higher requirements for enterprises to mine phosphorus resources. Phosphogypsum is the main line of the phosphorous chemical policy of major producing provinces - phosphogypsum, which is a by-product of phosphate ore processing, is difficult to treat and pollutes a lot, and is a long-standing environmental problem in the world. In recent years, China's environmental protection requirements have become stricter. Phosphogypsum treatment has become a “must do” for the provinces that mainly produce phosphate ore. Relevant policies will also affect the supply of phosphate ore. For example, Hubei Province controls the total amount of phosphate ore mined each year.

Global supply: The actual launch schedule falls short of planned expectations. The decline in taste and replacement of old and new can offset the increase in production domestically. According to the company's production capacity planning and the general pace of volume, we estimate that phosphate ore production will increase by about 286/6.05 million tons in 2024/2025, respectively. Although the company's plans to expand production have blossomed, on the one hand, the exploration, approval, construction, and commissioning cycle of the phosphate mine itself is very long. On the other hand, national policies are gradually being tightened, and the actual pace of commissioning will slow down, and there will be little increase in volume in 2024/2025. Overseas, it can be estimated that phosphate ore production will increase by about 456/4.54 million tons in 2024/2025 according to the enterprise's production capacity plan, respectively. By 2025, overseas enterprises plan to increase phosphate ore production capacity by 13.4 million tons/year, and we need to pay attention to actual progress.

It should be pointed out that the decline in phosphate ore taste and the replacement of old and new projects can offset the increase in production. Domestic phosphate ore is moving closer to the average grade of 23% of mineable reserves from 28%, and the average grade is falling from 28% to 23%. Similarly, production of 100 million tons means that effective supply has been reduced by about 18 million tons. Furthermore, some of the planned projects are replacement projects for old and new, and are not entirely incremental.

Sentiment analysis: The 2024-2025 economy is expected to be maintained. According to production capacity planning estimates, the growth rate of global phosphate ore production in 2024/2025 is about 3.2%/4.5%. If we take into account effective supply cuts in stocks due to declining domestic and foreign phosphate grades, and possible project delays, it is expected that in 2024, global supply and demand for phosphate ore will be in a tight balance, and prosperity is expected to be maintained. The supply and demand balance may change in 2026 and beyond, and the boom may fluctuate more.

Investment advice: it is recommended to focus on leading phosphate ore companies

The phosphate ore boom is expected to remain high in the next two years. It is recommended to focus on leading phosphate ore companies. Chuanheng Co., Ltd. (002895.SZ) currently has a phosphate ore production capacity of 3 million tons/year, with 750 (equity 500) million tons/year production capacity; Yuntianhua (600096.SH), which has a phosphate ore production capacity of 14.5 million tons/year, proposed phosphate ore in Yunnan; Xingfa Group (600141.SH), which has a phosphate production capacity of 5.85 million tons/year, and has complete industrial chain support. There are three phosphate projects proposed or under construction, including Jinghua, Qiaogou Mining, and Yi'an Industrial in Jingzhou.

Risk warning: 1) phosphate ore price fluctuations; 2) phosphate fertilizer demand fluctuations; 3) production capacity investment progress falls short of expectations; 4) production safety accidents.