In the face of new global changes, what is the exploitation of phosphate and iron in Algeria? University professor, international expert Dr Abderrahmane MEBTOUL elaborates.
At the last Council of Ministers, debates turned to the recovery of iron and phosphate deposits appropriateness. This is not novelty; as a young advisor to the Minister and Industry and Energy between 1974/1977, we discussed such projects within the framework of many studies. Furthermore, since then, how have all these studies in both foreign exchange and Dinars with no conclusive results cost?
The commercialisation of both iron and raw phosphate and derivatives depends as much on the strategy of a few global firms as on internal strategic management. Other factors like the cost of operations as well as the growth of the world economy play an essential role here.
The case of phosphate– As much as for iron, or energy-intensive cement units, the essential input is natural gas having to make arbitrage between the transfer price on the international market and the transfer to the units to generate a high added value. So the cost price of a tonne of ammonia at 4 Dollars/mmBTU would be 114 Euros per tonne, and on the contrary at 7 Dollars, we will have 200 Euros per tonne with a decrease in the last ten years of 10/15% depending on the geographical area. The price of derivatives is wildly fluctuating the urea fertiliser having been quoted between July and September at about 260 Euros per tonne. The increase in the world’s population and the demand for food are a determining factor in the growth of the phosphate market. Competition in the global market is very intense and relatively integrated, with the presence of limited vital players who get a significant share of global revenues. Key speakers include Russia’s Eurochem Group AG and PJSC PhosAgro; Canadian Agrium Inc. and Potash Corp. of Saskatchewan Inc. Norwegian Yara International ASA; C.F. Industries Holdings Inc. and Mosaik Co.; India’s Coromandel International Ltd.; Moroccan giant OCP S.A. and Israel Chemicals Ltd. According to a U.S. geological survey on phosphate rock 2019, mining production (+ réserves) en 2018 thousand tonnes is distributed as U.S. réserves 27,000-production (1,000,000) – Algéria réserves 1,300- production (2,200,000); the Global Total réserves being 70,000 (70,000,000).
The price per tonne of raw phosphate fluctuates; April 2020 $72.50 per tonne, in March 71.88, in April $70.75, in May at $72.90, and in June/July 2020 $75,000 per tonne, having been rated in October 2019 at $77.50 for sheet metal, in January 2020 at $72.50 per tonne. According to the World Bank, the general and medium-term trend in phosphate prices remains downward, and crude phosphate would trade in 2020 at around US$80-85 per metric ton, DAP around US$377.5 per metric ton and TSP at nearly US$300 per metric ton. According to the global rating agency, phosphate rock prices remained on average at $100 per tonne (at no charge onboard) in 2019/2020 and prices per tonne of phosphate rock (at no charge onboard) remained at $110 in the long run. Thus, if Algeria exports three million tonnes of raw phosphate annually at an average price of $100, a very optimistic assumption about world prices, at constant prices 2020, for 30 million Tonnes, it would get three billion Dollars and less than 2.5 billion Dollars at current prices. It must be said that in this sector, the expenses are very high (depreciation and salary expenses in particular) a minimum of 40%, thus making the net profit to about 1.8 billion Dollars for a price of $100 and less than 1.4 billion dollars for a price of $70. In the event of an association with an international partner, the net profit remaining for Algeria would be slightly more than 900/700 million dollars for both scenarios. We are far from profits in the field of hydrocarbons. To increase net profit, it is, therefore, necessary to embark on highly capital-intensive processing units with massive investments and medium-term profitability with the export of noble products, in the E.U., fertiliser/urea sold at more than 350 Euros per tonne in 2014. It was rated on an annual average in 2017 at 270 Euros per tonne. In April 2018, it was at 260 Dollars and at the beginning of May 220 to 250 Dollars per metric ton. In general, prices are very volatile, assuming perfect knowledge of the international stock market in order to avoid large losses in the event of low forecasts. Also, for a sizeable exportable quantity, this requires for Algeria, hefty investments and profitability in the medium term not until 2023/2025 if the project is in operation in 2020. Moreover, for a sizeable exportable quantity, this requires a partnership with international firms.
The Case of Iron – For September 20, 2020, iron is priced at 90 Euros per tonne, stainless steel 1921 Euros per tonne, steel 4520 Euros per tonne, aluminium 1364 Euros per tonne, scrap 148 Euros per tonne, zinc 1817 Euros per tonne, copper 5289 Euros per tonne, lead 1509 Euros per tonne.
As proof, in April 2019, the price of stainless steel was at an average of 2,598 Euros per tonne, rose by 2.8% year-on-year with stabilisation in May 2020 to 2600 Euros per tonne, being in high demand on the world market, depending on its destination and its applications, classified in four categories. Aluminium was at 1,460 Euros per tonne, down 9.4% month-on-month and 20.9%. The price of lead was at $1,658 per tonne, down 4.4% on a month-on-month basis and 14.5% year-on-year. The price of zinc was at 1,903 Euros per tonne, stable over one month and down 35.1% year-on-year. Furthermore, in November 2019, the price of steel was at $5,400 per tonne, down 23.6% year-on-year, and in May 2020, 4,740 Euros due to the coronavirus outbreak. In April 2020, the price of iron stood at $85 per tonne, down 4.7% month-on-month and 9.6%. International agencies estimate the world’s iron reserves at between 2018/2019, 85,000 million tonnes (M.T.). Australia leads with 23,000 MT, followed by Russia 14,000 MT, Brazil 12,000 MT, China 7,200 MT, India 5,200 MT, United States 3,500 MT, Venezuela 2,400 MT, Ukraine 2,300 MT, Canada 2,300 MT and Sweden 2,200 MT, Algeria according to Algerian reserves data would be about 3000 Tonnes but with exploitable deposits, estimated between 1,500 and 2,000 MT. The main iron ore producing countries are Australia: 39.8% (with 879 MT)- Brazil: 19.8% (with 436 MT) – China: 8.6% (with 191 MT) – India: 7% (with 154 MT) – Russia: 4.6% (with 101 MT) – Ukraine: 3.3% (with 73 MT) – South Africa: 3,2% (with 69 MT) – Iran: 2.6% (with 57 T – Canada: 2.2% (with 49 MT) – United States: 2% (with 44 MT) – Sweden: 1.2% (with 27 MT) – Kazakhstan: 0.6% (with 13 MT) – Other countries: 5.1% (with 113 MT) (Source: Natural Resources Canada). Steel is a fundamental product to our way of life and is essential for economic growth, the 10 largest producing countries between 2017/2018 are: China: 831,728,000 Tonnes, Japan: 104,661,000 T, India: 101,455,000 T, United States: 81,612,000 T, Russia: 71,491,000 T , South Korea: 71,030 T, Germany: 43,297,000 T, Turkey: 37,524,000 T, Brazil: 34,365,000 T and Italy: 24,068,000 T. In April 2020, copper was $5,058 per tonne, down 21.4% year-on-year. Evolution has not fundamentally changed since 2018. At a favourable price of $100 per tonne crude iron, for export of 30 million tonnes, we will have gross revenue of $3 billion. However, with this amount and more than 50% of expenses (the operating costs are very high), we are left with a net of the remaining $1.5 billion. This amount is to be shared with the foreign partner that in case of 30 million T, would be less than 800 million Dollars. This is because the exploitation of Gara Djebilet’s iron will require large investments in power plants, transmission networks, rational use of water, distribution networks that are lacking because of the remoteness of the sources of supply while avoiding the deterioration of the environment because the units are very polluting. Therefore, as with phosphate, only the transformation into noble products can provide greater added value for export. Because of the oligopolistic structure of the mining industry, at the global level, the only solution, if we want to export these noble products, is a win-win partnership with the reputable firms that control the segments of the international market that will not accept the restrictive 49/51% rule with bureaucratic burdens, with decisions taking place in real-time at the international trade level.
It is a question of avoiding the mistakes of the past by serious evaluations in terms of profitability and without a solid partnership, it is futile to penetrate the global market let alone the mining sector controlled by some international firms.
In the case of gold mines, let us avoid the unfortunate experience, with a massive liability, with the Australian company, Gold Mining of Algeria (GMA) where reserves of 173 tons have not increased one iota since 2007. All this raises the problem of mastery of strategic management. Like this drift of car assembly where we have now seen that it was a set for currency transfer traffic, going to predictable bankruptcies, after having perceived considerable financial and fiscal benefits. Like this utopia of dozens of cement complexes where we are currently witnessing the underuse of production capacity, the risk of plants cooling if storage is long-lasting, would increase the costs. The situation would result in unusable products for construction, except for those with points of support in Africa through their subsidiaries; otherwise, it would be difficult for other units to export, where, contrary to some discourse not based on any serious market research, market shares are already taken with many complexes being realised at the level of the Mediterranean basin. For this case, new construction methods worldwide are being saved from concrete round, cement and energy and as in Germany, is to use concrete to build roads often returning cheaper than imported bitumen. Algeria needs a strategic vision in which industrial policy must fit, in order to adapt to the new global sectors driven by perpetual innovation. Let us avoid utopias: Algeria will continue for many years to depend on hydrocarbons, with other raw materials making just an average profit to invest in democratic institutions, education, digital and energy transition. No country in the world that has relied solely on raw materials has succeeded in its development. Since the world is a world and this proves true with the fourth global economic revolution 2020/2030/2040 the prosperity of different civilisations has always rested on good governance, work and theoretical and applied research, a country without its elite being like a soulless body.