Phosphate price peaks and negotiations – Part 1: Fundamentals and the 1975 peak
Natural resources such as mineral commodities represent global assets of tremendous economic value for our modern-day society. Broadly speaking, the economic value in the form of the raw material price is related to their function, thus the demand for the commodity in interrelation to its supply.
While most mineral commodities allow substitution, at least in the long-run, phosphorus is bio-essential and thus unsubstitutable. Sourced almost exclusively from phosphate rock, phosphorus is predominately used for the production of mineral fertilizer, and therefore essential for society in general and global food security in particular.
Within Part 1 of this two-part research, we provide a comprehensive basis on the price-setting process for mineral commodities and particularly phosphates as well as an explanatory system model. The latter shows price-influencing factors, node by node, along the supply chain.
Our paper also examines the concept that it is not the various price-influencing factors that cause prices to increase rapidly, but the spike rather being a result of an imbalance between supply and demand.
We explain how, under exceptional imbalanced economic circumstances, the prevailing price-influencing factors can lead to an economic environment in which phosphate exporters can successfully demand significantly higher prices in a tight market without immediately creating significant deficit nodes along the chain.
We address existing knowledge gaps within science by presenting and discussing price influencing factors and their interdependencies, particularly, regarding key events in a time-line consideration. Our arguments build mainly on publicly available price information from the World Bank, whereby we comprehensively analyze and discuss data accuracy by including GTIS (Global Trade Information Services) custom’s data.
Part 1 covers the industry settings in the 1970s, the first major price hike event in 1974/1975, as well as the subsequent intervening period. The major 2008 price hike event and subsequent discussion and implications are covered in Part 2.
B. Geissler, G. Steiner, N. Haneklaus, M. Mew, Phosphate price peaks and negotiations – Part 1: Fundamentals and the 1975 peak, Resources Policy 83 (2023) 103587.