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Redrawing trade patterns for graphite and fluorspar

By Laura Syrett, Andrew Miller
Published: Wednesday, 20 November 2013

Shifting export hotspots and new market routes will reshape industries

Mineral pricesand deposit grades are often touted as the factors that decide whether a new mining project will make it into development.

 
New mine to market routes for industrial minerals will alter trade patterns
and reshape markets (source: Energizer Resources). 
But according to Andy Miller, analyst for IM Data’s specialist graphiteand fluorsparinformation service, deposit location and associated logisticscosts are also key determinants of a mineral project’s viability.

“While the natural properties of a project define the markets it can serve, and prices often signify conditions within these markets, it is costs that dictate whether it is actually feasible to supply these minerals to the market,” Miller says.

He notes that a gradual shift in primary export locations towards developing economies, and the emergence of new graphite and fluorspar projects in countries with relatively immature infrastructure, has meant that logistical arrangements have come to feature more prominently in capex and opex estimates.

“Logistics considerations, particularly in less developed regions such as parts of Africa and Asia, can form a large proportion of a project’s total cost and are therefore fundamental in identifying the potential returns on a project,” Miller explains.

Making margins

Miller says that while logistical options are considered from the outset of a project, they continue to be evaluated throughout the development of a deposit.

“There is no point spending money on even preliminary studies if the costs involved in transporting the material will be too high,” he says.

“That said, the finer details will only be refined as the nature of the property is explored. Once companies have a solid idea of the type of material and quantities they will be dealing with then logistical plans can truly be cemented,” he adds.

Because the margins on industrial minerals are usually much tighter than in other raw material markets, logistics can contribute significantly to the final price paid by buyers.

As Miller outlines, the exact proportion depends on factors including the mode of transport, volume, distance to market and the region of the world, but for graphite and fluorspar, this share is much less than some other minerals such as frac sand, where logistics account for around 70% of the delivered price.

“On average, logistics can account for between 20-30% of the delivered cost of a mined product, but market-specific supply chain factors will impact this,” he says.

Transporting graphite and fluorspar

As Miller outlines, natural graphite is generally transported by sea freight. Over 70% of global production comes from China, more than half of which is exported to Europe, the US and other areas of Asia. From port, it is generally then distributed by road.

Graphite is generally moved as concentrate in 25kg sacks or bags, so closed transportation vehicles are necessary.

Fluorspar is slightly more diverse, Miller explains. Mexico’s Mexichem is the largest sole producer and supplies its neighbour, the US, by rail and road, as well as other parts of the world by sea freight. In Asia, Mongolia supplies into both Russia and China via the trans-mongolian rail network, while China again supplies much of the rest of the world by sea freight.

Acid-grade fluorspar (acidspar) can be moved either as dry or wet filtercake which means there are slightly different transportation requirements, depending on the way the material has been processed.

Occasionally, metallurgical-grade fluorspar (metspar) can be moved as rock, which has its own transportation issues, but generally some sort of processing takes place on site.

Chinese logistics

China is the leading producer of both graphite and fluorspar. The government has pushed to consolidate some of the country’s graphite market in recent years, which has led to the emergence of larger, more powerful companies that have established more efficient logistical infrastructure.

China’s fluorspar production is more spread out, however, with many smaller producers meaning that the quality of transport links is more varied.

For both minerals, the rest of global production takes place among a few, long established mining operations, meaning logistical infrastructure is relatively advanced.

Infrastructure investment at new projects

While the locations of many new projects often posethe challenge of rudimentary transport links,  Miller says that growing investment in both minerals and other commodities in these regions means that infrastructure is growing quickly.

“Mozambique, for instance has had a wave of investment from the LNG sector which is reducing the costs for companies trying to develop mines in the area,” he says.

“It will take big extractive projects like oil and gas, coal and iron ore to open the door for more niche mineral projects.”

“I think there are areas which will be subject to greater logistical challenges but few of these are particularly unique,” he adds.

“The major players in the graphite and fluorspar markets over the coming decade are likely to be projects in areas such as Vietnam, Mongolia and Mozambique, where accessibility may be an issue.”

“However, some new projects are located in more economically advanced regions which eases logistical difficulties, such as in Canada, or the new projects which are coming on stream in the UK and Germany. Canada-based projects certainly use this as a selling point.”

New trade routes

As new projects and export hubs for graphite, fluorspar and other industrial minerals begin to mature, Miller believes that markets will start so see new patterns of trade materialise.

“I think we’re entering a new generation of trade routes for a number of mineral markets. China, which dominates supply of many minerals, is developing its downstream markets and looking to export less,” he explains.

The slump in global markets for raw materials has allowed China to divert investment into downstream industries, enhancing the country’s potential as a manufacturing centre and simultaneously increasing domestic consumption.

“As China steps back from its place as the world’s top raw material supplier, there will be a gap in the market for new low cost supply. Which countries step into this void will define new trade routes,” Miller says.

Andy Miller will be discussing this article in more detail in a presentation at Moving Minerals 2013 on 3 December in Amsterdam. Contact lsyrett@indmin.com for more information or visit www.indmin.com/MM2013 to download the programme and register.



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