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Mineral trade outlook: China, rare earths, frac sand, graphite

By Mike O'Driscoll
Published: Thursday, 01 March 2012

China concern 2013; trade driven by logistics, environment, resource development

This is a comment from Mike O'Driscoll, editor of IM .

“A range of influencing factors are expected to shape the future of international trade in industrial minerals as further constrictions in supply from China are forecast for early 2013 and other factors see new trade patterns emerge.

Resource-to-market proximity – such as paper grade kaolin supply from USA/Brazil to Asian markets – and limited resource distribution – such as rare earths from China to the rest of the world – remain a staple strong influence on trade routes.

However, it needs to be stressed that so-called “critical minerals” security is not the sole property of rare earths, lithium, and graphite, as highlighted by recent EU and US government raw material initiatives.

Source availability of the more humble aluminosilicate minerals (andalusite, bauxite , kyanite, mullite) or oilfield minerals (barytes, frac sand) are of equal concern to their respective traders and consumers as they remain in short supply and high demand.

In addition, the rapid development of specific market demand “hotspots” will always create a sudden change in demand for mineral trade – take the unprecedented demand for silica sand for hydraulic fracturing ( frac sand ) in shale gas exploration in North America.

Import reliance

Allied to the “critical minerals” issue is the reliance by certain countries and industries on limited sources that are becoming increasingly unreliable and costly – namely, China.

Two examples include the refractory market of Japan's reliance on Chinese refractory raw material supply, and the USA’s >50% reliance on a variety of minerals from several overseas sources including China (see illustration).

Some 60% of Japan’s refractory raw material requirements are imported with a high dependence on Chinese sources including graphite, fused alumina, dead burned magnesia, and bauxite.

The USA has an import reliance of 100% for at least 10 minerals (including bauxite, fluorspar, graphite, rare earths); 80-88% for antimony, potash; 76-78% for barytes and silicon carbide; 68% for titanium minerals; and 50-56% for chromite, iron oxide pigments, lithium, and magnesia.

China – future concern

Considered by many as the common denominator affecting much of the trade in minerals, there is no doubt that China has (and will continue) influenced trends in trade.

Right now, as has been well documented by IM, there is a continuing sea change in trade flow regarding minerals and China.

The government policy of increasing natural resource control, discouragement of exports, crackdowns on environmental pollution and smuggling, combined with strong domestic demand (although muted a little at present) means no change to rising prices and unpredictability in supply and grade quality.

So, the WTO gave the final thumbs down to China's appeal on its export policy findings – probably no sweat there as China seeks to implement no doubt long planned contingency measures in the form of alternative tax regimes.

Already we saw last year the start of a natural resources tax on coal, and in February 2012 mining tax rises were reported for boron, magnesia, and talc. In light of the WTO ruling, it’s considered likely that China will now drop its export license system – too late for H2 2012, but come 2013 it is not expected to be renewed.

And in it’s place? Well, that’s the concern.

In addition to the above-mentioned tax tweaks, it is speculated that the government may draft in new regulations demanding mineral exporters to be vertically integrated, ie. they must own and operate, or be strongly affiliated to mines.

At the same time – and this could be the killer – exporters must ensure acquisition of a range of permits/licences covering mining, environmental, social care activities. This may prove quite a challenge for certain suppliers.

Therefore, should this come to pass, certain traders are already anticipating a shortfall in Chinese mineral supply in H1 2013 as China’s mining industry and trading fraternity adjusts to such a new regime.

For certain minerals, such as magnesite, this has already commenced to a large extent, but the casualty list is expected to be high for fused alumina, bauxite, silicon carbide, and graphite.

Vertical integration, environment, logistics

Other factors shaping trade include the increasing trend in vertical integration by mineral consumers: this is particularly prevalent in the refractories industry, but also spreading to other sectors whereby consumers are simply securing their own mineral sources and supply routes.

Environmental impacts include the shadow of REACH in Europe, for example, recently giving rise to an EU reduction on borates used in detergents, but also the emergence of “secondary sources” of raw materials from waste processing.

The latter “secondary sources” are emerging with advances in processing technology and in some cases will be closer to their end user markets than their natural source counterparts, eg. foundry grade chromite sand recovered from landfill sitesin Ohio.

New and innovative logistics solutions, whether technical (cargo parcel concepts), or alternative routes(containers on the Trans Siberian Railway; new rail links through China/central Asia), are already seeing new trade patterns emerge as they open up new sources.

Outlook

The future for minerals trade will be dominated by the exploration and development of alternative sources to China worldwide. Expect to see more activity in Africa , central Asia, Middle East , South America, and central and eastern Europe.

There is some potential within the EU, and certain requirements are being highlighted by various EC initiatives, but the region is far from mine development friendly.

But also note the potential of Afghanistan , Iraq (projects already being evaluated), and even North Korea and Cuba in the future. Ironically, there will be increasing competition with China over securing such resources worldwide, as the country seeks to meet raw material demand from domestic growth.

However, at the same time there are opportunities to now export to China (and India) as their domestic markets expand.

And expect to see more high volume consumers consolidate and vertically integrate their raw material supply chains."

IM Editor Mike O’Driscoll was invited to present Mine to Market: International Trade in Industrial Minerals ” at the Critical Mineral Resources session of the 2012 SME Meeting & Exhibit held in Seattle, 19-22 February 2012.

Catch the latest trends and developments in oilfield minerals trade at the upcoming IM Roundtable: Oilfield Minerals Outlook, 20-21 June 2012, Houston.