Could there be a war over phosphorus?

Earlier this week we started looking at fertilisers. We covered nitrogen and potassium. These have some crucial investment opportunities – but it’s all good news for humanity, as we learn to produce more of these fertilisers, more sustainably, and with less energy.

However, there’s one more plant macronutrient you need to know about, and that’s phosphorus. On Tuesday, I promised you some bad news about it.

Actually, I’ve got two pieces of bad news. Firstly, phosphorus is in finite supply. We can’t make more of it. We can’t “fix” it from the air; it’s mined from rocks, and these are slowly running out. Shockingly, there’s no global body overseeing the supply of phosphorus. It’s like humanity is floating in the sea on a wooden boat, and some people are breaking pieces off the boat to use the wood for fuel – while everyone else ignores the problem. Eventually, this could end very badly.

Secondly, to make matters worse, almost the whole world’s supply is controlled by a handful of states: Russia, China, the US, and Morocco/Western Sahara. Morocco alone has around three-quarters of total known reserves – it’s the Saudi Arabia of phosphorous. It’s fair to say “known reserves” aren’t necessarily something to worry about – because there may be large supplies of any given mineral awaiting discovery elsewhere. But equally, it’s potentially very risky to rely on the discovery process to come up with a replacement for a supply that’s been wastefully used. Furthermore, to reduce geopolitical risk, any new reserves would have to be found outside of the small handful of states listed above.

So what could the consequences of this be?

A quick glance at what OPEC did with oil shows how vulnerable we are to cartels being formed to take control of strategic mineral reserves. Could we see phosphorus wars in future?  I think it’s certainly a possibility.

As time goes on we have to use deposits that are lower quality and harder to extract. Prices have already spiked in recent decades, going up from a former peak of $300/ton in the mid-1990s to a new high of a little under $900 in the late 2000s. This inevitably impacts on food prices. It’s notable that we’ve seen revolutions and war in many middle-income countries since the financial crisis. These events have roughly coincided with this “new normal” of high phosphorus prices. Phosphorus isn’t the primary cause of rising food prices, but it’s a part of the mix. And likewise, rising food prices aren’t the sole cause of wars – but again, they are part of the mix.

The 20th century was indisputably the century of oil. That age is over. Portugal recently did four straight days without using any fossil fuels at all in electricity generation. Soon, we won’t need much fossil fuel – as renewables are taking over our energy supply. But we can’t make phosphorus from the sun and the wind. We can’t make more of it at all. The best we can do is get better at finding it, recycling it, and cleaning up any contaminated deposits we find.

There are several ways this problem can be a profit opportunity.

Firms like Lenntech and Ostara are in the business of recovering phosphorus from the least glamorous place you can think of: sewage facilities. There’s also huge potential for recycling waste from farm slurry pits – and it’s even possible that we’ll end up mining sewage sludge from landfills.

Even without a phosphorus supply crisis, recovery is currently important – because phosphate pollution causes huge problems when it’s washed into freshwater. Waste phosphate is still active as a fertiliser. It therefore causes major ecosystem disruption, contributing to “dead zones” where all the oxygen is used up in a water body by rotting, overgrown algal blooms. I recently saw this myself in Berlin’s Tiergarten – roughly the equivalent of Hyde Park. The shoreline was full of dead fish, and those that were still alive were bobbing around on the surface, trying desperately to catch some air. Predators and prey ignored each other as they struggled to survive. The stench was overpowering, and even people on passing trains would cover their mouths with scarfs. It was a nightmarish scene, and one that is being repeated all around the world’s freshwater bodies and coastal zones. As pressure increases to manage phosphorus better, we’ll likely see more pressure for use of this type of recovery technology – and not just for pollution control, but for sustainable recovery. There’s currently a programme to harvest algae from America’s Great Lakes, for exactly this reason, and it’s being tested by David Blersch from the University of Buffalo.

Another process to be aware of comes from the deep sea. Mining firms like Nautilus Minerals are doing some seriously creative things when it comes to looking for new extraction opportunities, specifically from the seabed. Yep, we’re going to have to go to the depths of the ocean, if we want to keep eating. Nautilus’ current focus isn’t actually on phosphorus, but there’s plenty of it down there – so these pioneering deep-sea mining firms may ultimately end up serving the fertiliser market, too.

And finally, there’s plenty of horrible, dirty phosphorus around. Keep an eye out for firms developing processes to clean up phosphorus ores which are contaminated with heavy metals. Cadmium is a particular problem, as it’s toxic. As we have to use lower-purity supplies, these purification firms will be operating in a potential growth sector.

Finally, there’s another play here – and that’s obviously the software and data side. Firms like SMART! Fertilizer Management provide software tools to help farmers more intelligently apply fertilisers. This saves money, as well as using non-renewable resources more efficiently. Presently, the developing world is the most wasteful user of fertilisers – with China a particularly egregious example.

You may not have previously realised how much of an effect fertilisers have had on the world. When you next bite into a sandwich, remember that much of it wouldn’t be there without fertilisers. And with the information you now have, fertilisers can be as significant for your portfolio as they are for your lunch.

Category: Commodities

Copyright © Southbank Investment Research 2017. All rights reserved

Southbank Investment Research. Registered office: 2nd Floor, Crowne House, 56-58 Southwark Street, London, SE1 1UN. Registered in England and Wales with company no. 9539630 and VAT no. GB 629 7287 94.

Privacy & cookie policy | Terms and conditions | Top ↑