Battleground zircon

By Simon Moores
Published: Tuesday, 26 October 2010

The cost of zircon sand has continuously risen in 2010 leaving consumers facing bills of over $1,000/tonne. A lack of new supply together with unforeseen Chinese growth has left buyers at breaking point, and this could just be the start

The zircon industry has never quite faced a situation like it finds itself in today.

Seemingly everywhere along the mine to market chain every production blip, every contract agreed, are conspiring to undermine in the market and squeeze supply.

A raft of production problems at the world’s leading suppliers is affecting the supply side, especially in South Africa and Australia. China’s insatiable appetite for zircon in ceramics and chemicals, which is far exceeding industry predictions, is impacting the demand side.

The two other critical factors exerting economic and physical pressures: strong currencies in South Africa and Australia reducing profit margins and last year’s destocking trend leaving no inventories to draw upon.

As a result prices have been forced skywards. New Q4 contracts for this year have increased by $100-150/tonne the bulk of which is expected to stick.

Premium zircon is now costing $1,000-1,050/tonne (FOB Australia) if purchased in bulk. This is 30% higher than at the end of 2009. In what gives further context, zircon was $400/tonne in 2003.

While there has been industry discussion on replacement minerals, actual usage has yet to significantly materialise.

As the industry moves into the next round of contract negotiations in the closing month of the year, the price could go even higher - some predict as high as $1,150/tonne.

One UK-based buyer said that the industry was reaching “breaking point”.

“There has to be enough profit across the industry for people to make enough to carry on. This is not a long-term business at the moment,” the source explained.

But this could be just the start of a pricing spike.

“I expect zircon prices to double in the next two to three years,” zircon expert, Alister MacDonald of Technical Ceramics Marketing Services Pty Ltd, explained to IM.

“Strong growth in China and elsewhere combined with flat or falling production are responsible for the jump in zircon prices this year,” said MacDonald.

These basic fundamentals are not expected to change soon.

Zircon is commonly produced with titanium dioxide (TiO2) bearing minerals ilmenite and rutile from heavy mineral sand. It takes many years to develop a new mine.

For example, Kenmare Resources took seven years to develop its Moma mine in Mozambique. Iluka Resources, the world’s leading minsands producer, first started work on Jacinth Ambrosia in 2004 opening the operation in February of this year.

The only new supply within the next 12 months will likely come from an Iluka ramp up at Jacinth Ambrosia and Murray Basin 2, a Bemax Resources start-up at the new Snapper mine in Australia, and new production from Matilda Zircon Ltd’s Tiwi Island operation which started in June 2010.

“The real story here is that ore bodies are slowly declining and by 2015 several mature operations could be depleted. The only new zircon source is in the Eucla Basin in Australia,” Gavin Diener, senior consultant at TZMI, explained to IM.

Leading suppliers such as Iluka Resources are also feeling the strain of the market demand.

The Perth-based minsands miner is the major supplier of zircon to China.

“Zircon demand from customers has remained in excess of the company’s ability to supply, a situation which has led to rationing of volumes across customers and which is expected to continue throughout the fourth quarter,” the company said.

Scrapers at Iluka’s Jacinth Ambrosia, the world’s
largest new source of zircon. Iluka Resources

Demand growth surges

The industry may see month-by-month supply surges say from an ilmenite miner that hits a pocket of higher zircon content - something which can and does happen. The success at Richards Bay Minerals’ tailings project in South Africa could also yield more tonnages for the market.

But with China’s hunger for zircon growing by the day, the outlook for significant additional quantities needed is not looking positive.

“This year China will consume around 600,000 tonnes of zircon sand. At a growth rate of 16-18% [pa] it’s going to need at least an extra 100,000 tonnes which won’t happen,” said MacDonald.

Chinese buyers are already having trouble sourcing material.

TZMI expects zircon demand to grow at an even faster pace in 2010.

“We had previously forecast global demand growth for zircon at 14%... our latest estimate is 23%,” the Australia-based consultants said.

For the minsands industry as a whole - which produces a range of titanium metal, titanium dioxide ceramics and abrasive minerals from heavy minsand sources - zircon has become a poster child for new investment.

“The zircon market is a prime example of some of the activity in the sector with Chinese demand as strong as it has ever been it is obvious now that zircon will end 2010 in a reasonable deficit,” said TZMI.

Many of the supply issues faced today are a result of an industry bereft of investment at the start of the 2000s.

Greenfield developments are few and far between with the most likely next on-stream being Mineral Deposit’s Grande C™te project in Senegal and Gunson Resources’ Coburn operation in Western Australia.


The uncharacteristic level of destocking experienced in 2009 is a core contributing factor to the tightness seen in the market.

Such an uncertain future resulted in either buying hiatus or short-term contracts across the whole minerals industry. Zircon was no different.

Virtually all major zircon users decided to run down stocks as buying significant amounts of new product was deemed too risky. A destocking trend therefore took hold.

With demand significantly ramping up in 2010, especially from China, there has been no time to replenish these stocks so zircon is literally going straight from the mine to the customer.

MacDonald said: “No one is holding stock at the moment, it is all coming from present production.”

And this present production is having a number of its own problems.

“Industry inventories are considered to be at historically low levels,” said Australia zircon supplier Bemax Resources.

The company, like Iluka, has had its fair share of delays to the new Snapper mine in the Murray Basin (see Supply Spotlight).

Exchange rates have also impacted investment into the sector. The strength of Australia dollar and South African rand has had a significant detrimental impact on profit margins as all zircon is traded in US dollars.

“If we have the majority of our revenues in US dollars and translate into Australian dollars, clearly there is an impact,” Robert Porter, Iluka’s general manager of investor relations said to IM.

“We had some residual currency hedging but that was instituted for balance sheet protection reasons. Our approach to managing margin outcomes (whether impacted by currency or other factors) will be through both pricing and cost outcomes,” he added.

Handling sands: zircon, derived from the pictured
mineral sands post-separation, is experiencing
some of the strongest demand ever.
Iluka Resources

Are replacements on the horizon?

The question of zircon substitution has been circulating the industry for many years but has yet gained much traction.

The present price trend however again has buyers of zircon, particularly those in the West, considering their options.

“Producers have increased their asking price by $100/tonne,” a European buyer explained to IM, “...but it’s going to come to the point where people just don’t use it and find replacements.”

Zircon has many applications all with their own technical challenges of implementing a substitute replacement. Then there is the effect the zircon replacement material will have on the end product. Replacing zircon could be a false economy.

For example in ceramics zircon gives a pure white finish and in glazes, a high opacity. Any changes to the to the ceramic mix takes 18 months to two years to bring to production by which time zircon prices could have fallen again.

MacDonald explained: “For over 80% of applications there is no immediate alternative for zircon. People will throw at you alumina or tin oxide, but the cost of tin oxide is ten times the cost of zircon and has extremely limited availability,” said MacDonald.

“Alumina is $300-400/tonne but it does not give the same performance,” he added.

Producers of the refractory and abrasive material, fused zirconia, are implementing price increases of 20-25% in the latter stages of 2010. The price of zircon sand, the feedstock used, is a core reason behind the move.

It is believed that fused zirconia producers would be able to absorb prices increases of up to $1,800/tonne before reaching a “tipping point” towards other zirconium sources.

The most advanced zircon projects

Company Project Stage Zircon target (tpa) Start-up
Mineral Deposits Ltd Grande Cote, Senegal Completed DFS 80,000 2013
Gunson Resources Ltd Coburn, Western Australia Completed FS 40,000 2013
Base Resources Ltd Kwale, Kenya DFS 35,000 2013-2014
Toliara Sands Toliara Sands, Madagascar BFS 23,000* 2014
Iluka Resources Typhoon, South Australia Exploration n.a. >2014

DFS = Definitve Feasibility Study
FS = Feasibility Study
BFS = Bankable Feasibility Study

Zircon Prices (nominal dollars)

2000-09 CAGR Iluka = 12.2%, TZMI = 12.8%.
Source: Iluka and TZMI Mineral Sands Annual Review (2010)

Pricing lessons from history

Spikes in value have been seen before

As buyers baulk at the rising price of zircon sand well over the $1,000/tonne mark complaints are rife that the cost is too high and the present situation is unsustainable.

But the industry has been here before.

1988: $1,000/tonne
2010 comparative value: $1,810/tonne

Reasons: On 4th July 1988 the Singa Sea vessel sank in heavy weather off the coast of Western Australia carrying with it 13,000 tonnes of zircon sand, 2% of the global demand at the time.

This forced smaller contract prices of zircon to rise above $1,000/tonne on a CIF basis from Rotterdam. Contracts signed earlier in the year saw a wide price variation between $300-700/tonne for standard grade material.

In today’s money the range would be $544-1,270/tonne.

The sinking of the Singa Sea compounded what was already a tight supply situation akin to that of today.

Quoting from IM November 1990: “It was the combination of increased demand together with static production levels which conspired to create the tightness seen in the market.”

This paints a very similar picture to today. This time however it was Japan’s steel and ceramics industries that were driving the spike in demand.

Supply Spotlight

Slow ramp ups and poor planning hinder flow of new supply

One of the core reasons behind zircon sand’s price heading north has been significant problems affecting major suppliers. In what can be viewed as a mix of bad luck and self-inflicted problems, miners in Australia and South Africa are struggling to reach production targets.

Iluka’s slow ramp up

Iluka Resources’ delays in ramping up its new Murray Basin 2 and Jacinth Ambrosia zircon-focused operations has resulted in less product on the market than expected in H1 2010.

The two projects are the centre piece to Iluka’s new business model which is seeing more emphasis on supplying zircon, moving away from the lower value TiO2 feedstock, ilmenite.

For H2 2010, however, more zircon has come onto the market from the Australian operations with Iluka expecting to hit its 2010 annual targets.

Things are looking up for Jacinth Ambrosia also.

The company said: “Total zircon production sourced from Jacinth-Ambrosia for 2010 is expected to be approximately 150,000 tonnes, underpinning confidence in the achievement of the expected full year 2011 production of 300,000 tonnes.”

Bemax Snapper delays

A number of factors including market conditions in 2009 have delayed the commissioning of Bemax Resources new Snapper mine in the Murray Basin.

Originally slated for a 2008/09 start-up, Snapper is now expected to be in operation before the end of 2010.

To give the new project a boost, Bemax will use workforce from its Ginkgo mine to shorten the ramp up time.

“We are drawing on the experienced workforce from Western Australia to support the Snapper Mine commissioning, as well as redeploying staff and equipment from the nearby Ginkgo mine,” said Bemax chief, Dominic Manganaro.

As of end-September 2010 Bemax mined 25,257 tonnes of zircon and sold 35,405 tonnes, supplementing from stocks. The company appears on track to match last year’s production figure of 31,186 tpa. This was a very poor year for global zircon demand however with most buyers running down inventories rather than buying new stock.

Exxaro: strikes & mine closures

South African mine strikes in August and September saw production slow for nearly a month at Exxaro Resources.

A nationwide dispute over wages cost Exxaro three weeks of full-rate production at its 9m. tpa heavy minsands Hillendale mine before agreeing to an 8.5% pay rise.

The company had an output of 300,000 tpa zircon in 2009 from its KZN Sands, Namakwa Sands, and Richards Bay operations. Output from KZN, however, will be wound down over the next five years after the company made the decision to close it.

The company also cancelled its Fairbreeze mine plan owing to the global financial crisis which would have been Hillendale’s successor.

Anticipated zircon consumption December
2010 to March 2011

The arrows indicate comparative consumption
 between end markets. Across the board
demand is expected to increase.

Where is zircon sand produced?

Data in tonnes