VZCZCXYZ0000
RR RUEHWEB

DE RUEHAM #1612/01 1490846
ZNR UUUUU ZZH
R 280846Z MAY 08
FM AMEMBASSY AMMAN
TO RUEHC/SECSTATE WASHDC 2735
INFO RUEHAD/AMEMBASSY ABU DHABI 1230
RUEHGB/AMEMBASSY BAGHDAD 5995
RUEHBJ/AMEMBASSY BEIJING 0158
RUEHEG/AMEMBASSY CAIRO 3671
RUEHDM/AMEMBASSY DAMASCUS 3895
RUEHJM/AMCONSUL JERUSALEM 5040
RUEHNE/AMEMBASSY NEW DELHI 0278
RUEHRH/AMEMBASSY RIYADH 1961
RUEHTV/AMEMBASSY TEL AVIV 1202
RUEHKO/AMEMBASSY TOKYO 0276
RUEHOT/AMEMBASSY OTTAWA 0234
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC

UNCLAS AMMAN 001612 
 
SIPDIS 
SENSITIVE 
 
STATE PLEASE PASS TO USTR 
STATE FOR NEA/ELA and EEB/TRA 
 
E.O. 12958: N/A 
TAGS: EAGR ECON EINV ETRD JO
SUBJECT: GROWING DEMAND AND PRICES FOR POTASH AND PHOSPHATE: JORDAN 
CASHES IN 
 
REF: A) AMMAN 1149 
 B) AMMAN 1019 
 
¶1. (U) Summary: With growing world demand and rising prices, the 
combined exports of fertilizer, potash, and phosphate replaced 
apparel as Jordan's top export worldwide in the first quarter of 
¶2008.  The Chairman of the Arab Potash Company (APC) confirmed 
rapidly growing profits, prices, and stock prices.  Jordan Phosphate 
Mining Company (JPMC) has had similar growth, raising the ire of 
local farmers who complain about a lack of domestic pricing for 
fertilizer.  Both companies were privatized, and the Government of 
Jordan (GOJ) intends to maintain its minority stake in them.  End 
Summary. 
 
Worldwide Demand and Rising Fertilizer Prices 
--------------------------------------------- 
 
¶2. (U) The Jordanian Department of Statistics reported in May that 
the value of Jordan's fertilizer exports in the first quarter of 
2008 rose 23% from $89 million to $102 million compared to the same 
period in 2007.  Exports of crude potash rose 19% from $76 million 
to $92 million.  Exports of crude phosphate rose 29% from $45 
million to $59 million.  When fertilizer, potash, and phosphate are 
combined, their export value now surpasses apparel as Jordan's 
overall top export.  NOTE: Apparel continues to be the top Jordanian 
export to the U.S.  END NOTE.  Jordan's fertilizer industry is led 
by APC, which has a government concession to extract minerals from 
the Dead Sea including potash; JPMC, which is the lone company 
licensed to mine phosphates in Jordan; and several smaller 
companies, which are either subsidiaries or joint ventures between 
APC, JPMC, and foreign fertilizer companies.  APC and JPMC were both 
government-owned companies that were privatized in 2003 and 2006, 
respectively, and are now publicly traded. 
 
¶3. (SBU) Maysoon Bahous, Commercial Manager for Arab Fertilizers and 
Chemicals Industries LTD (KEMAPCO), told EconOff that worldwide 
demand for fertilizer continues to grow.  She said this demand 
growth is for finished fertilizer, as well as the raw materials used 
in fertilizer production, including potash and phosphate.  APC 
Chairman Mohammad Abu Hammour attributed the increased demand for 
fertilizer to rising world population; the increasing amount of meat 
in Chinese and Indian diets which requires grains for fodder; and 
the change to environmentally-friendly industrial fertilizer from 
manure.  Abu Hammour said this growing demand will continue to drive 
prices higher.  Ahmad Khalifeh, Managing Director of Albemarle 
Middle East, a division of the U.S. chemical company, predicted that 
the prices of fertilizer and all fertilizer ingredients would remain 
high in the foreseeable future.  Abu Hammour called the Jordanian 
export of potash and phosphates "the oil of Jordan." 
 
Arab Potash Company: "We Are Making Good Money" 
--------------------------------------------- -- 
 
¶4. (U) APC extracts minerals from the Dead Sea and is the only 
company licensed to do so on the Jordanian side of the sea, with a 
100-year concession that will end in 2056.  APC has two primary 
products, fertilizer-grade potassium chloride and potash, with the 
majority of revenues coming from potash.  Potash is an export-driven 
industry, with 96% of sales as exports, and is geared mostly towards 
Asian markets, according to a Jordan Investment Board (JIB) report. 
 
¶5. (SBU) Abu Hammour said that since January, contracted potash 
prices have risen from $200-250 per ton to $650-700 per ton.  He 
said demand remains high and he receives daily calls asking about 
availability.  APC is in the midst of expanding its production from 
1.9 million tons per year to 2.5 million by June 2009, and intends 
to expand to three million tons in the next three to five years.  He 
noted that Israel's production from the Dead Sea is currently over 
three million tons per year.  Correspondingly, Abu Hammour said that 
APC's profits have grown from $56 million in 2006 to $214 million in 
¶2007.  He predicted $250 million in profits in 2008 and over $350 
million in 2009.  Abu Hammour further predicted that APC's share 
price, which has grown 600% this year, would continue to rise with 
ongoing demand growth. 
 
¶6. (SBU) Abu Hammour said that people have criticized the 2003 
privatization of APC, arguing that the stock price increases are not 
benefiting Jordanians.  He countered that money is going to Jordan's 
treasury.  Mining fees, which are paid to Jordan for use of Dead Sea 
resources, were raised on potash from $11 to $21 per ton.  In 
addition, the land-lease agreement was increased from $2,100 per 
year in 1998 to $282,000 in 2003.  He said this rent is renegotiated 
every five years and it will likely increase 400-500% in 2008.  Abu 
Hammour acknowledged that "we are making good money" and he was not 
complaining about these increases. 
 
Anger Grows Along With JPMC Sales 
--------------------------------- 
 
¶7. (U) JPMC is the only company licensed to extract phosphate rock 
in Jordan, and is the largest mining and industrial employer in the 
country.  It currently operates three mines and a downstream 
fertilizer and chemical plant in Aqaba.  JPMC is the world's sixth 
largest phosphate producer, and the second largest exporter in the 
world.  Over 64% of JPMC's production is exported. 
 
¶8. (U) The local press reported on May 14 that JPMC's revenues grew 
from $110 million in the first quarter of 2007 to $134 million in 
the first quarter of 2008.  In addition, profits grew 84% to $12 
million despite rising costs for production inputs.  Abu Hammour 
said that worldwide demand for phosphate is as high as the demand 
for potash.  JPMC is diversifying its portfolio with the production 
of downstream fertilizers.  It is one of the only companies in the 
world, according to Business Line Magazine, that produces 
di-ammonium phosphate (DAP), a fertilizer ingredient primarily sold 
to India which has seen strong growth. 
 
¶9. (SBU) Two hundred people from agriculture-related businesses, 
including the Union of Farmers and Agricultural Engineers, protested 
in front of JPMC on May 26.  Sameer Oweis, who owns several 
agriculture-related businesses, told EmbOff that the demonstration 
was against the rapid increase in prices in fertilizer and the lack 
of domestic pricing.  He claimed JPMC has also stopped selling to 
local agricultural businesses.  He alleged he and other domestic 
customers were told that JPMC is "doing maintenance" on its plant, 
but he claimed that they were continuing to export phosphate 
products.  He said that ammonium phosphate has gone from $282 to 
$846 per ton, potassium chloride from $150 to $625 per ton, and 
potassium nitrate from $422 to $950 per ton since January.  Weis 
said that he spoke to Prime Minister Dahabi about the situation and 
was told that the PM cannot interfere in private businesses.  Oweis 
argued that JPMC is not entirely a private business because it is 
"using Jordan's treasure."  He added that Saudi Arabia and the 
United Arab Emirates are not selling their top commodity, oil, 
domestically at world prices but are instead selling it at a lower, 
domestic price and Jordan should do the same with its natural 
resources. 
 
Subsidiaries Not As Successful As The Parent Companies 
--------------------------------------------- --------- 
 
¶10. (SBU) Abu Hammour noted that APC has several subsidiary 
companies: APC Salt for industrial salt; Numira for Dead Sea health 
and beauty products; Jordan Magnesium; Nippon Jordan Fertilizer 
Company; and KEMAPCO.  He said all were formed with the goal of 
increasing the amount of Jordan's downstream products, but admitted 
that success to date has been limited because of poor management and 
poor feasibility assessments.  The magnesium business case predicted 
a 7.5 percent rate of return which he said was far too low relative 
to the risk.  He said magnesium production was halted in 2004 
because of losses and APC seeks to sell the entire company. 
 
¶11. (SBU) Nippon Jordan Fertilizer Company (NJFC) is a joint venture 
between APC, JPMC, and Japanese companies including Mitsubishi.  The 
company now produces 300,000 tons per year of nitrogen, potassium, 
and phosphorous fertilizer and operates a facility in Aqaba. 
KEMAPCO General Manager Bassam al Zoumot explained that KEMAPCO was 
founded as a joint venture between APC and the Finnish company 
Kemara, which had deep knowledge about the manufacturing of 
potassium nitrate.  Zoumot said that APC, which now owns 100% of 
 
KEMAPCO, will offer a 40-80% stake in KEMAPCO sometime in late May 
or early June.  KEMAPCO has two products: potassium nitrate, a 
water-soluble fertilizer, and dicalcium phosphate, an animal feed. 
 
 
After Privatization, Government Continues To Benefit 
--------------------------------------------- ------- 
 
¶12. (SBU) Executive Privatization Commission's (EPC) Secretary 
General Dina Dabbas said the government of Jordan (GOJ) owns 26% of 
the shares of APC and JPMC following their respective 
privatizations.  NOTE:  APC Chairman Abu Hammour was previously the 
head of EPC.  END NOTE.  She said the government has no intention of 
changing its investment level, and highlighted that the Social 
Security Commission owns additional shares.  The GOJ's active role 
in these companies ended with privatization, but benefits from 
mining fees and the growing tax revenue received.  Abu Hammour said 
that while the Canadian firm that owns 28% of APC retains management 
control, GOJ has a majority of board members including the chair. 
 
Impact of Inflation and Employment Trends 
----------------------------------------- 
 
¶13. (SBU) All interlocutors said that inflation was impacting their 
businesses through rising transportation and energy, particularly 
electricity, costs (ref A).  Abu Hammour predicted that inflation in 
Jordan will continue to rise throughout 2008 and 2009 with continued 
fuel price increases impacting nearly all product categories.  He 
said that APC's annual costs had increased by $14 million primarily 
because of high oil costs, but that the increases were offset by 
increased revenue.  Zoumot said KEMAPCO was also impacted by the 
dinar's peg to the dollar which was increasing the cost of European 
replacement parts. 
 
¶14. (SBU) Zoumot also explained that inflation was impacting his 
employees, and noted that it was becoming more difficult to recruit 
employees to his plant in Aqaba where the cost of living was growing 
particularly rapidly (ref B).  Khalifeh said Jordan Bromine, a major 
potash customer, has raised its employee's salaries three times 
since September 2007 because of inflation.  These raises were 
necessary because of the rising prices of consumer goods, as well as 
the fear of having employees recruited away to the Gulf states. 
 
¶15. (SBU) In spite of growing sales and profits, employment rates 
are not increasing.  The manufacture of fertilizer is not a 
labor-intensive industry, and employment numbers have been falling 
since privatization.  APC has seen a steady decline in employment, 
from 2,600 employees in 1998 to 1,900 in 2007.  JPMC has also seen a 
decline in employment, from 6,000 in 1998 to 3,700 in 2008.  Across 
companies, plants are staffed with a mix of engineers, skilled and 
semi-skilled technical workers, most of whom are Jordanian. 
 
Comment 
------- 
 
¶16. (SBU) Jordan's fertilizer industry is an important one 
particularly because these export industries help Jordan's balance 
of trade and bring in foreign currency.  Post contacts agree that 
demand for these products will continue to rise, as will their 
prices.  Jordan's domestic agricultural sector is, however 
politically well-connected, and growing complaints about being 
priced out of the market or forced to buy at world prices continues 
to highlight the balance GOJ must play as it promotes private sector 
growth. 
 
Visit Amman's Classified Website at 
http://www.state.sgov.gov/p/nea/amman/ 
 
HALE