The Moroccan group, OCP (Office Chérifien des Phosphates), has reported substantial losses amounting to 2.8 billion dirhams (approximately 290 million USD) during the first half of the year. This marks a stark contrast to the profits of 8.6 billion dirhams recorded in the same period last year, largely attributed to a decline in exports, weak global demand, and rising raw material costs driven by the ongoing Iran conflict. This is the first time since the first half of 2020 that the state-owned entity, which stands as one of the largest fertilizer producers worldwide, has reported such significant half-year losses. The group's revenues dipped by 7.3% year-on-year to 48.3 billion dirhams during the initial six months of this year, according to their financial statement.
OCP indicated that its operations have been negatively impacted by soaring prices of certain input materials and supply chain disruptions, particularly concerning sulphur, a critical component in the production of sulphuric acid utilized in phosphate fertilizer manufacturing. Additionally, maintenance activities carried out in the second quarter affected 30% of production capacity due to a shortage of sulphur and ammonia.
Impact of the Iran Conflict on Sulphur Supply
The supply disruptions related to sulphur have been exacerbated by the ongoing Iran war and the closure of the Strait of Hormuz, through which significant volumes of raw materials from Gulf countries transit. Morocco relies on several nations for its sulphur requirements, with Kazakhstan, Saudi Arabia, and the UAE being primary sources, while the Moroccan government has recently explored supply options with Baghdad. Consequently, the value of Morocco's sulphur imports surged to 20.2 billion dirhams during the first seven months of the year, reflecting a staggering 159% increase year-on-year, as reported by the Office des Changes, the government body responsible for foreign trade statistics.
This surge in import value comes despite a 9% year-on-year decline in the volume of sulphur imports, which totaled 3.68 million tons during the same period. This decrease can be attributed to a significant increase in the average import price by 182%, reaching 5,490 dirhams per ton, according to data from the Ministry of Economy and Finance. Under normal circumstances, nearly 35% of global urea trade, over a quarter of ammonia trade, slightly more than 20% of phosphate trade, and about 45% of sea-borne sulphur exports pass through the Strait of Hormuz, highlighting its importance to the phosphate industry.
OCP manages Morocco's phosphate reserves, which account for approximately 70% of global reserves. However, the production of fertilizers also necessitates raw materials that the group imports, making supply costs a critical factor in its operational performance.
Declining Global Fertilizer Demand
In its financial results announcement, OCP noted that the revenue decline reflects reduced export volumes amid a slowdown in global demand, particularly from India, Europe, and Africa. However, the group's sales in the Americas, especially in Brazil, witnessed an uptick. Mustapha Terrab, the group's CEO, stated in a press release that the group's strong fundamentals, along with strategic decisions regarding production levels, raw material procurement, and product mix optimization, have helped maintain operational flexibility during challenging conditions characterized by sharply rising sulphur and ammonia prices.
Terrab further asserted that the group had secured sulphur stocks prior to the recent price surge and had initiated part of the maintenance program originally scheduled for the second half of the year at the beginning of the second quarter to preserve operational agility for the remainder of the year.
To mitigate reliance on sulphur, OCP is focusing on increasing production and sales of TSP fertilizer, which is phosphate-rich and requires significantly less sulphur and does not necessitate the use of ammonia, thereby reducing the group's exposure to rising input costs.
Furthermore, the Moroccan company is spearheading a $13 billion investment program from 2023 to 2027 aimed at boosting fertilizer production capacity from 12 to 20 million tons while achieving carbon neutrality by 2040. This includes developing 5 gigawatts of clean energy, producing 560 million cubic meters of desalinated water, and generating green ammonia to reduce future import dependence.
OCP is leveraging debt markets to finance its program, having raised approximately 20 billion dirhams from international and local bond markets in the first half to support its investment initiatives. In addition to phosphate, the group is also investing in other sectors, including green hydrogen, education, health, clean energy, and supporting startups.
As reported by asharqbusiness.com.
