Minsheng Securities: The tight balance between supply and demand for phosphate ore may continue, and phosphate ore prices are expected to remain high

The Zhitong Finance App learned that Minsheng Securities released a research report saying that in the fourth quarter, phosphate ore prices remained high. According to Baichuan Yingfu data, as of October 15, the average price of 25% phosphate ore was 785 yuan/ton, up 2.6% from the beginning of the year and 9.0% from the low price in early June; the average price of 28% phosphate ore was 949 yuan/ton, up 1.3% from the beginning of the year and 1.0% from the low price in early June. Considering the increase in entry barriers to the phosphate ore industry, the production cycle is about 1-2 years after the new phosphate ore is put into production. The time point of massive supply release may be later than 2026. The current pattern of tight balance between supply and demand for phosphate ore may continue, and phosphate ore prices are expected to remain high.

The main views of Minsheng Securities are as follows:

China's endowments in phosphate ore resources are not strong, and production has continued to grow in recent years

Global phosphate resources are unevenly distributed. According to USGS data, the world's phosphate reserves are about 74 billion tons in 2023, of which Morocco's reserves are 50 billion tons, accounting for 68%; China's reserves rank second in the world, with reserves of about 3.8 billion tons, accounting for 5%. In 2023, China's phosphate ore production reached 105 million tons, accounting for about 48% of global production. China's phosphate ore storage ratio is only 36, and the ability to guarantee the sustainability of phosphate ore is not strong. In terms of industrial structure, China is a country with a high degree of upstream and downstream integration of global phosphate ore. In recent years, with the increase in demand for downstream phosphate fertilizer and new energy materials, the overall phosphate production has continued to grow, from 89 million tons in 2020 to 105 million tons in 2023, with a CAGR of 5.7%. Of these, production remained above 100 million tons in 21-23.

At the policy level, emphasis is placed on the ability to guarantee the sustainability of phosphorus resources. Currently, domestic phosphate ore plans to add a lot of additional production capacity, but the certainty of project implementation and actual commissioning progress remains to be seen.

At the beginning of 2024, eight departments including the Ministry of Industry and Information Technology jointly issued the “Implementation Plan for Promoting the Efficient and High-Value Utilization of Phosphorus Resources”, which mentions improving the market allocation of phosphate resources and the mining rights concession system, strict and orderly investment of phosphate mining rights, supporting the integration of “mining, selection, and addition” to obtain mining rights in large-scale phosphorus chemical companies in accordance with the principle of marketization, reasonably determine the scale of mining in newly built mines, and enhance the sustainable guarantee capacity of phosphate resources. Support excellent and strong enterprises to integrate small and medium-sized phosphate mines through mergers and restructuring, etc., and push phosphate mining enterprises with poor technology, low efficiency, which do not meet ecological and environmental protection requirements, and do not have safe production conditions to withdraw according to law and regulations.

Minsheng Securities believes that the entry barrier for phosphate ore as a strategic protection of mineral resources has been further raised, and the industry is expected to gradually clear out small production capacity. The pace of approval of mining licenses and subsequent safety assessments, EIA, and energy assessments for existing new construction projects remains to be seen, and the actual commissioning time for some projects may be delayed.

In terms of additional supply, according to Baichuan Yingfu statistics, domestic phosphate ore production capacity reached 65.25 million tons as of September 2024. Of these, it is planned to add 190, 2285, and 30.3 million tons of production capacity from 2024 to 2026. The rest of the production capacity will be put into operation one after another after 2027, of which 2026 is the centralized production period for phosphate ore.

Demand for traditional phosphate fertilizer is characterized by rigidity, and the demand for new energy lithium iron phosphate for phosphate ore is expected to increase rapidly

About 60% of the downstream phosphate ore is phosphate fertilizer. In recent years, under multiple factors such as extreme weather, geopolitics, and trade protectionism, China has attached great importance to food security. The area under grain cultivation has continued to grow. Phosphate fertilizer is one of the three traditional monomer fertilizers, and overall demand is expected to increase steadily. In terms of increasing demand for phosphate ore, benefiting from the rapid development of new energy vehicles, demand for lithium iron phosphate grew rapidly. Domestic demand for lithium iron phosphate increased from 107,000 tons to 1.70,000 tons during 2019-2023, with a CAGR of 98.8%. Currently, there are still many lithium iron phosphate projects under construction and planning. As these projects are put into operation one after another, it is expected that the demand for phosphate ore in the new energy sector will continue to grow.

Target aspect: It is recommended to focus on large phosphorus chemical companies with integrated advantages of “mining, selection, and addition”: Xingfa Group (600141.SH), Yuntu Holdings (002539.SZ), Yuntianhua (600096.SH), Chuanheng Co., Ltd. (002895.SZ), Chuanfalong (002312.SZ), Xinyangfeng (000902.SZ), etc.

Risk warning: Risks such as the pace of phosphate production falling short of expectations, risk of production safety in the mining industry, and lower downstream demand than expected.