1. Paris, May 2016
Prepared by CVA Fertilizer Practice
© Corporate Value Associates 2016. All rights reserved
PURIFIEDPHOSPHORIC
ACID: A KNOTTY NICHE
MARKET FOR
PHOSPHATE PLAYERS

2. PurifiedPhosphoricAcid(PPA)onlyrepresents5%oftheworldwidephosphate
consumption, the rest being mainly destined to fertilizers.
Purifying phosphoric acid consists of obtaining P2
O5
concentrations ranging between 55% to 62%
from phosphate rock or Merchant Grade Acid (MGA), with limited amounts of impurities. According
to both the amount of impurities and the final application, distinction is made between technical
PPA and food grade PPA.
PPA can be produced through thermal or wet purification. The thermal
process, whose principle is to burn phosphate rock in an electric oven, is
progressively set aside in favour of wet purification, consisting of chemical
purification combined with solvent extraction.
PPA applies in a wide range of industries. It is mainly used in the detergents
industry as a cleaning agent and in the food industry as an additive. Those
two applications represent more than 60% of the total PPA demand.
Moreover, PPA is required in other industries, among which water-soluble
fertilizers, water purification, metal polishing and toothpaste.
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PPA demand patterns are evolving
Worldwide PPA demand volumes have increased by 1% per year over the
last decade. However, PPA applications have followed heterogeneous
and specific growth patterns, according to the regions and applications,
largely influenced by changes consumption habits, technologies and
governmental regulations.
In the detergents market, growth trends have followed contradictory
directions according to the regions. Most domestic phosphate-based
formulations have been banned in Europe and the United States in order
to limit water eutrophication, whereas regions like Asia or Latin America
have readily used PPA-based agents in their detergent formulations. The future of phosphate in
detergents in those regions will rely on local governments’ environmental awareness and their
ability to efficiently implement regulations, as well as the local availability of detergent substitutes
like zeolites.
In the food market, the demand for phosphate-based additives is related to the consumption of
processed and packaged food. Whereas this demand have plateaued in mature markets like
Europe and North America, emerging economies’ demand have skyrocketed with the spread of
Western lifestyles and the boom of middle classes. The key question regarding the future of PPA
application in this industry thus relies on how much and how fast Western habits will stretch to
emerging countries. As for PPA’s other outlets, the evolution of demand depends on specific
variables such as potential substitution effects, environmental regulation, technology
development or population and economic growth.

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Rationalization
China excluded, PPA producers are fewer. PotashCorp, Innophos and Simplot
share the market in North America, whereas Emaphos and Prayon satisfy most
of the EMEA demand. Some thermal producers under cost and environmental
pressure had to shut down, like Thermphos, whose bankruptcy deprived the
European market of a 200,000-ton production capacity. In Europe, the
disappearance of the detergent application as well as environmental issues
played a key role in the rationalization process.
PotashCorp, Prayon, Innophos, ICL and Emaphos, the top 5 players, have extended existing
capacities and have become more global through the acquisition of overseas assets such as
Fosbrasil, bought by ICL in 2014.
PPA supply is consolidating
Over the past few years, there indeed have been two major
moves on the supply side of the market: rationalization and
downstream integration.
Today, 70% of worldwide roduction capacity excluding
China are in the hand of the top 5 players.

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Downstream integration
Large players like Prayon, ICL or Innophos increasingly push downstream PPA-
based products, in order to position on high added value segments, capture
price premiums and further secure their business.
For instance, and especially since the detergent industry collapsed in Europe,
Prayon has specialized in new product ranges for food and fertilizer applications,
while Innophos has extended its product lines further mainly in its nutrition
division.
The Chinese PPA supply differentiates itself from the rest of the world. First, it is rather
fragmented in several dozens of small Chinese producers displaying low capacities. Second, a
great majority of Chinese players do not have access to the wet purification process, which has
some implications on the perceived quality of PPA and production costs. Nonetheless, in the
long run, China’s PPA supply structure will probably not escape the consolidation and
rationalization moves, and is expected to concentrate around large wet-process players such as
the Wengfu Group or Chengxing.
Chinese producers have held a decisive position in
the worldwide trade
Chinese exports have doubled over the last decade and now account
for more than 500,000 tons, while Europe and North America absorb
60% of global PPA imports.
This increase in China’s exports lies in its capacity to sell PPA at a
very competitive price due to the decrease in electricity prices, and
the removal of export taxes. China has taken advantage of the closure
of PPA production plants in Europe and in North America to further penetrate international
markets.
However, local producers in Europe and the US still
prevail over Chinese production of food grade PPA,
whose quality is perceived as inconsistent for
technological and logistic reasons.
China’s PPA market is expected to experience deep
transformations in the medium and long term, depending
on key variables:
- As the country is mostly producing thermal PPA, which is especially energy-consuming,
national power prices will undoubtedly determine Chinese utilization rate adjustments and
PPA production.
Chinese exports have
doubled over the last
decade and now
account for more than
500,000 tons

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- Phosphate rock scarcity is likely to change the competitive landscape by dismissing non-
integrated and non-competitive local players.
- Changes in public regulation on environment and export taxes will determine the ability of
Chinese players to sustainably serve overseas market.
- Part of the Chinese supply will probably be redirected to the local and regional escalating
demand, thus redesigning trade flows to Europe and North America in the long term.
Phosphate producers might capture attractive
PPA price premiums
The PPA market gives phosphate rock extractors and MGA producers the
opportunity to position further down on high added value segments and capture
price premiums. High PPA price premiums are justified by further treatment of
the rock or phosphoric acid through an advanced technology, as well as in the
rather difficult financial, legal and practical access to purification technologies.
Whilst it is undeniable that MGA and PPA prices are tightly correlated, PPA price
is less volatile than MGA price. Over the last decade, PPA price per ton P2
O5
has
been largley superior to MGA price on average with great premium disparities
overtime, which are linked with the short term evolution of supply
and demand equilibrium.

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Uncertainty is a constant part of business. Changes in needs and
behaviours, in technologies, in regulation and other key areas are difficult
to predict a few years in advance let alone 10-20 years ahead. In this
respect, CVA will prefer scenario-based thinking schemes over past
extrapolation. The company recognizes that the most effective way to
manage uncertainty is to address it and evaluate the available options.
CVA followed its scenario-based method to better understand the supply-demand equilibrium
in the PPA market. For this analysis, CVA has especially benefited from:
- a privileged access to quantitative and qualitative data through numerous interviews with
PPA industry collaborators;
- its extensive experience in similar and related industries, such as fertilizer markets;
- its long-running usage of scenario-based thinking models;
- an access to relevant data bases, completed by additional bibliographic and news research.
Through distinct study of supply and demand, CVA has been able to deliver a robust expertise
on the PPA market equilibrium by eventually colliding both sides of the market.
On the demand side, several scenarios have been taken into
account especially for the food application. Future PPA demand
per region has been assessed according to the importance
that can be expected from the additive-free food movement in
developed countries. When no alternative scenario was
designed, CVA made sure that the base scenario is more than
likely to take place. For instance, future legislation on the
detergents market, either officially stated or intuitionally
perceived by experts and CVA teams, has been carefully
weighted.
On the supply side, scenario-based thinking has proved relevant especially in the case of China,
for which CVA has designed three different scenarios relying on the evolution in electricity
prices and availability of phosphate rock.
Therefore, by going through the entire spectrum of possibilities with this methodology, CVA has
been able to holistically assess the PPA market equilibrium, competitive intensity and premium
price range possibilities in the medium and long term.
How CVA unravelled the PPA market
CVA will prefer
scenario-based
thinking schemes
over past
extrapolation.
Other variables are likely to play a key role in the evolution of the PPA price, such as the long
term scarcity of phosphate rock, the pursuit of the rationalization and consolidation processes,
and disruptive price positioning from Chinese producers.

7. © Corporate Value Associates 2016. All rights reserved
This report has been prepared by CVA Fertilizer Practice in May 2016
Visit us on www.corporate-value.com for more information on CVA
Feel free contact the team directly for any queries:
Laurent Lemarchand
CVA Paris
Partner Metals & Mining
Leader of CVA Fertilizer
practice
Julien Revellat
CVA Paris
Partner Metals & Mining
Leader of CVA Fertilizer
practice
Thibault Martin-Ségur
CVA Paris
Manager in CVA Fertilizer
Practice
Pauline Laravoire
CVA Paris
Consultant in CVA Fertilizer
Practice
CVA Fertilizer Practice

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Corporate Value Associates