Pigments on rollercoaster ride

By Jessica Roberts
Published: Friday, 17 December 2010

Bumpy road ahead for pigment producers as construction and automotive markets decline in the west but rise in the east, driven by an emerging Asian middle class

The pigments supply-demand rollercoaster of the last three years shows few signs of slowing down. In wide-ranging markets from construction to plastics, and automobiles to ceramics, pigment producers throughout the world are waiting with baited breath for their respective governments’ fiscal policies.

Several resulting factors of the global financial crisis have impacted demand for inorganic pigments, particularly a dearth of new construction projects and a significant drop in automobile sales. While both markets consume vast amounts of paint, the stagnation of construction markets has resulted in knock-on negative effects for ceramics, paper and roofing materials, while the decline in automobile markets has also hit plastics producers.

“All pigment markets, and primarily the construction related ones, are still suffering from the economic downturn,” Tom Henderson, EVP sales and marketing for pigments group Prince Minerals, told IM. “There are modest signs of recovery but it is fragile and seasonal at best.”

Prince Minerals, formed in 2003 by Palladium Equity Partners from its acquisition of The Prince Manufacturing Co., is a leading supplier of colorants and additives to the brick, ceramic, and glass industries.

The company’s 2009 purchase of UK-based Castle Colours Ltd strengthened its supply of pigments for European brick and tile markets, just as the recession hit construction markets. Although the sector has picked up in 2010 it still remains behind 2007-8 levels.

Construction collapses in the west...

The latest statistics from the US Census Bureau highlight just how far the construction market has declined in the USA. During the first 10 months of 2010 construction spending amounted to $684.7bn, 11.2% below the same period in 2009 Ð itself a disappointing year.

In October 2010 construction spending was estimated at a seasonally adjusted annual rate of $802.3bn, 0.7% above September’s spending but still 9.3% below October 2009 levels. Private construction accounted for $481.8bn while public construction reached $320.5bn.

The situation in Europe mirrored that of the USA, although a stabilisation looks likely in 2011. Euro area (EA16) construction fell 2.1% month-on-month in September 2010 while EU27 seasonally-adjusted output declined 1.7%.

Annual comparisons for available Member States showed construction fell in ten and rose in four. In 2010 Spain remained a high-profile casualty of the construction market collapse, decreasing 37.3% between September 2009 and 2010. Other poor performers were Slovenia (-18.5%) and Romania (-14.2%). Meanwhile, the highest increases were recorded in Poland (+13.4%), Sweden and the UK (both +6.9%).

“Demand for construction focused pigments is behind 2007-8 levels, but demand in 2010 is ahead of 2009 levels, which is encouraging,” commented Henderson.

“We expect that 2011 will be slightly better than 2010 but still below peak demand experienced prior to the economic downturn. We believe that the construction markets will rebound by 2012-13,” he forecast.

...but rises in the east

Unsurprisingly construction markets in China showed solid growth last year. The National Bureau of Statistics of China reported January to November 2010 real estate investment at RMB 4,269.7bn ($641bn), and sales of commercial buildings as RMB 4,230bn ($635bn) Ð year-on-year increases of 36.5% and 17.5%, respectively.

Pigment producers in countries such as the USA are now focusing on Asia for new demand, reflected by an expected record year in the USA for TiO2 exports in 2010 with the figure standing at 363,000 tonnes in H1 2010.

“The pigments market is prosperous at present; the demand is a little bit higher than the supply which solved the problem of stocks caused by the previous economic crisis,” Gao Fu Jun, general manager of China’s Yipin pigments, told IM.

“With the recovery of the economy there is a big demand for pigments especially from the emerging countries and regions such as China, India, Brazil and Africa that will bring the opportunity for the pigments market,” he added.

Asia’s insatiable demand for pigments such as TiO2, combined with an overall dearth of investment in pigment capacity over the last five years, has resulted in tight supply conditions for white pigment feedstock minerals ilmenite and rutile. Australian minsands producer Iluka Resources has warned of an impending supply shortage - as soon as 2015.

Asia has also offered opportunities for coloured pigments such as iron oxide. Spanish iron oxide producer, Promindsa, has significantly increased its sales to the region over the last five years.

“These countries - Russia, China, Brazil and the USA - with an interesting, high rate of growth and geopolitical influence, help us to get a strong position in specific regions,” Promindsa president, Fernando Prada, told IM.

Prada believes the future of the pigment industry will be closely related to the progress of the global economy and, specifically, Chinese-European relations - such as production, supply and cost-quality issues.

Prince’s Henderson, meanwhile, noted that while emerging markets have increased their pigment consumption, they still remain much smaller volume markets compared to established sectors. “We expect traditional markets will rebound based on regional GDP growth patterns,” he forecast.

Paint promise

The effect of construction activity on paint markets is undisputed. 2009 production figures in the USA show manufacturers’ shipments to both the domestic and export markets fell by 12%, following an 11% fall in 2008. They went below the 4bn litre mark for the first time since 1991.

OEM coatings (including paints for vehicles, furniture, domestic appliances, cans and other types of packaging) reached a peak of 1.86bn litres in 2001 and then fell back by more than 40% to 1.08bn litres in 2009, severely affecting demand for a number of pigments.

But higher demand is expected within the next few years as construction (particularly housing) markets improve. World demand for architectural paint is forecast to rise 3.6% pa through to 2013, totalling 22.8m. tonnes, US consultancy Freedonia forecasts.

Growing urban populations and better standards of living in emerging economies are expected to put pressure on existing housing stock. Gains in Asia are predicted to come primarily from Chinese and Indian markets, increasing market share in the Asia Pacific region to 35%.

In North America, meanwhile, it is expected that the housing market will provide opportunities for paint sales through new construction projects and home repainting. But Western Europe’s share of the global architectural paint market is forecast to decline as the region experiences lower construction volumes and mortgage sector weaknesses.

The overall trend is clear, however: paint consumption will continue to grow so long as a desire for certain standards of living remains.

“The paints market will continuously grow as demand for high standards of life will grow, and paint is a part of this high standard. Pigments are just a compulsory part of the paints,” Joelle Briot, president of French minerals processor CMMP, told IM.

“Pigments have a relationship with local traditions of building and decoration. This will change progressively as our world is more and more ‘global’ with international trading, communication, and fashion,” she added.

Auto drive-down

Growing urban populations and higher living standards also drive demand for automobile consumption, itself a large end market for pigment-heavy paints and plastics.

In 2009, only four of the world’s top 15 auto-producing countries posted annual growth figures: China (+48.3%), India (+12.9%), Iran (+9.5%) and the Czech Republic (+3.0%). Total world production of automobiles declined 12.8% to 61,714,689 units, with the largest producers being China, Japan, the USA and Germany.

According to statistics released by the International Organization of Motor Vehicle Manufacturers (OICA), China is by far the largest auto producer, accounting for 13,790,994 units in 2009, followed by Japan with 7,934,516 units. Motor vehicle manufacturing is being increasingly dominated by Asia, as domestic populations increase their wealth - notably China and India.

Meanwhile, western auto producers have struggled to maintain numbers despite fiscal stimulus aid packages in countries such as the UK and USA.

Although the numbers have declined for automotive production, the US plastics industry has shown more promise. In 2009 the country’s plastics manufacturers spent $7.8bn on capital expenditures and the value of goods shipped was $327bn.

According to data from the Plastics Industry Trade Association, US exports increased 32.6% between January and July 2010, while imports increased 21.4% from the same period in 2009. The industry’s trade surplus continued to grow substantially Ð as of July 2010 it reached $10bn, surpassing the 2009 year-to-date surplus of $6.1bn.

However, competition from China remains one of the main concerns for the US industry, particularly in the plastic products segment of the market, which continues to grow and accounts for a significant portion of the trade deficit in processed products.

Despite competition, the US plastics industry has offered signs of hope for pigment producers, with an increased market share of total US TiO2 consumption from 20% in 1999 to 25% in 2009. But the production of TiO2-containing plastics, such as white goods, has grown at a much slower pace in the past decade compared with the 1980s and 1990s.

Challenges ahead

The main markets for pigment minerals all face uncertain futures. While it can be reasonably assumed that large mineral-consuming industries like automobiles, construction, ceramics, paint and plastics will always be required, the financial health of major producing countries will determine how quickly demand recovers - and where. In terms of individual companies, it is a matter of fighting to stay competitive during these uncertain times.

For Promindsa’s president, pricing policy is one of the most important issues in a company’s strategy. “To supply a product to a specific country is not only a matter of price or quality, but also a matter of culture - for example China,” Prada told IM.

Prada believes companies need to adopt the ‘glocal’ way of conducting business - thinking globally, but acting locally.

“I do believe there is only one way: thinking about R&D in a global economy,” Prada commented. “In my opinion there are no promising markets, but promising services in different markets - the product variety offered, customization, trust, lead times, etc.”

Prince’s Henderson offered similar views. “The opportunities are to find raw materials that perform well in pigment applications, but offer a degree of separation from global demand pressure.”

“Stronger than expected demand for steelmaking raw materials has resulted in higher costs,” he explained.

Meanwhile, environmental concerns continue to affect some pigment products. Although chromium oxide and cadmium have traditionally faced closer environmental inspection, this awareness is spreading to all aspects of the market.

“The main challenge and opportunity is the worldwide growing green demand of the pigments market,” said CMMP’s Briot. “By chance most minerals are non-toxic and exempted of REACH legislation.”

CMMP processes a number of pigments and coating minerals including chromite, micaceous iron oxide, and biotite and muscovite micas. The main challenge the company sees in the future is the growing awareness of environmental issues, particularly in Europe.

Briot is concerned that individual countries have established their own standards for labelling products as eco-friendly, creating in Europe a jungle of environmental requirements.

“We hope that the green market will be more organised in a few years,” Briot commented.

One particularly bright opportunity is the paper market, especially in Asia. Here, paper pigment minerals - such as ground calcium carbonate and kaolin - are experiencing strong demand at present.

Global production of paper and board (P&B) totalled 391m. tonnes in 2008 with Asia accounting for 39% of this. Four countries - USA, China, Japan and Germany - accounted for 55% of global production with the top ten countries accounting for 72%.

China is now the world’s largest producer of paper and board (P&B) with an estimated 90m. tonnes produced in 2009 compared to 78m. tonnes in 2008. It is estimated that 2010 figures were as high as 98m. tpa - a sharp rise from the 20m. tpa in 1995.

In China pigment loading is much higher than elsewhere in the world. Pigment loadings of 40-50% are now common and some of the newest mills will handle loadings of up to 55%.

Ground calcium carbonate (GCC) is the country’s main paper pigment utilised as filler, pre-coating and coating pigment. In China, there are abundant sources of high quality marble near to the main papermaking areas, and a lack of suitable coating kaolin deposits. US kaolin producers, in particular, have found a new opening for their products as the country’s own paper industry has reduced kaolin consumption in favour of GCC.

Global financial considerations

Pigment market recovery may be expected, but where and how fast are two unknowns - both to be determined by global financial policies. All eyes were on the USA in the last quarter of 2010 as market participants waited to see if the US Federal Reserve would launch a second round of quantitative easing (nicknamed QE2) in efforts to shore up the domestic economy.

In November the Federal Reserve announced it would buy $600bn of longer-term Treasury securities by the middle of 2011, stating it would “adjust the programme as needed to best foster maximum employment and price stability”.

The Financial Times reported the launch of the new QE2 to be one of the most significant decisions the Federal Reserve had made for years, allowing the USA to boost its economy by driving down long-term interest rates when short-term rates were already at zero. The market reaction to QE2 should start to become evident in H1 2011.

In Asia, the economic situation over the last few months has cooled. China, the world’s largest producer and consumer of industrial minerals, continued to slow its economy to resist overheating, with the state raising the reserve requirements for six banks which would drain cash from the economy.

Contrary to the US, the Chinese want to remove easy credit for business to avoid creating a bubble which may burst later, and China is making banks keep hold of cash instead of lending.

Despite attempts to prevent overheating, in December 2010 China’s inflation hit 5.1% - much higher than interest rates targeted by the government. While negative for China, the rates could result in the government allowing the renminbi to appreciate Ð a definite positive for other countries.

Europe was leading the charge for recovery at the end of Q3 2010 with increases in manufacturing and construction stronger than expected. The European Commission (EC), in its autumn forecast released in November 2010, projected that the EU economy would continue its slow recovery but with uneven progress. The EC predicts GDP to grow 1.75% in 2010-2011 and by around 2% in 2012.

“Amid a softening global environment and the onset of fiscal consolidation, activity is expected to moderate towards the end of [2010] and in 2011, but to pick up again in 2012 on the back of strengthening private demand,” the EC said.

Should the EU and USA’s economies mirror their 2011 forecasts, the opportunities in the western and eastern hemispheres are likely to be promising for pigment producers. Now it is a matter of wait and see.

Inorganic pigments at a glance

White pigment minerals

Antimony oxide: used on its own or in combination with halogens in halogenated compounds for fire retardant applications in plastics, adhesives, textiles, rubber and paint. The tinting strength of antimony oxide generates a whitening effect in filled products, dependent on average particle size. It may also be used with anatase-based TiO2 to modify the chalking tendency.

Barium sulphate: used in combination with zinc sulphide to produce lithopone Ð the main source of white pigment prior to the introduction of TiO2. The world market, at 400,000 tonnes in the 1950s, has declined to less than 200,000 tonnes today. In more advanced markets, lithopone still finds minor use in micronized form as a speciality additive in inks, paint and plastics.

Calcium carbonate: ground and precipitated calcium carbonate grades (GCC and PCC) are excellent pigments for paper applications, where TiO2 has traditionally been ineffective. In the papermaking process, the small particle size of TiO2 pigment means that it tends to be drained with the water, and, even with the help of retention aids, 5-10% of the pigment can still be lost.

Papermakers have increased their consumption of GCC and PCC as cheap and effective alternative white pigments because of their good brightness, opacifying, dispersion and light scattering properties. Main producers for paper pigments are Imerys and Omya.

Kaolin: hydrous and calcined kaolins are also used as a white coating agent in papermaking, but over the last 30 years kaolin has started to lose its market share to GCC and PCC with the now widespread use of alkaline paper mills.

Titanium dioxide: the undisputed leader in the white pigment market, imparting whiteness, brightness and opacity to paints, plastics and paper. TiO2 can be produced via the chloride route using rutile, or the sulphate route using ilmenite. Due to being chemically inert, resistant to UV degradation, and thermally stable over a wide range of temperatures, TiO2 has the additional advantage of providing excellent colour retention to the products in which it is used, even in extreme conditions. Main producers are DuPont, Cristal Global, Kronos Worldwide and Huntsman.

Zinc oxide: a basic white pigment which reacts with acidic resins to form soaps that have increased reinforcing power but cause brittleness in external surfaces. At high loadings of over 30% by weight, zinc oxide acts as a fungicide.

Non-white pigment minerals

Carbon black:
traditionally used as a reinforcing agent in tyres, today the uses have expanded to include pigmentation, ultraviolet (UV) stabilisation and conductive agents for a number of coating applications including automotive (primer basecoats and clearcoats), marine, aerospace and industrial coatings.

Chromium: sodium dichromate is the most economical form of chromium and the starting point for a number of dyes, paints and pigments. It can be treated via sulphuric acid, carbon dioxide or electrolysis to produce sodium dichromate, which itself is feedstock for compounds including the pigment chromium oxide. Main producers are Elementis and Lanxess.

Iron oxide: around 2% of production is used for iron oxide pigments from either natural (NIO) or synthetic (SIO) sources - SIO being the main pigment, with close to 90% of the market. NIO is usually derived from haematite and magnetite, while SIO is manufactured by chemical processes such as thermal decomposition of iron salts or iron compounds, precipitation of iron salts, and vapour synthesis. Biggest producer is Lanxess.

Micaceous iron oxide (MIO) is a unique form of NIO that has a distinct physical form and properties, which means it is often treated as a separate market. A type of haematite, MIO is dark grey to black with finer grades having a red tint. MIO is inert, non-toxic, non-oxidising, non-corrosive, and non-flammable. It is an excellent anticorrosion agent used in speciality coatings for structural steel works, such as bridges, pipelines and offshore oil rigs. Largest producer is Austria’s Kartner Montanindustrie with 90% of the market.

Mica: main commercial mica-based pigment is muscovite (white) mica. Micronized grades are normally used to produce a nacreous effect pigment. The mineral’s particle shape is key to the pigment’s appearance, with aspect ratio determined by PSD of the mica platelets. Mica pigment market accounts for about 20,000 tpa of production.

Ultramarine: blue pigment for which the only natural source is lapis lazuli, a gemstone formed from metamorphosed limestone. For industrial use, lazulite is produced synthetically by world leaders Holliday Pigments Ltd in the UK and France. Used mainly in high value applications such as cosmetics, plastics, paints and inks.

Other pigments: cadmium, manganese, mixed metal oxides, rare earths, and zircon.

Iron oxide markets (1.5m. tonnes)*

*natural and synthetic
Source: Industrial Minerals

Chromium oxide markets (300,000 tonnes)

Source: Vincent Agnello, 2010

Selected pigment mineral supply highlights

Company Mineral Country Comments
AMR Resources titanium dioxide Aksu Diamas, Isparta, Turkey UK-based AMR is developing the Aksu Diamas project, which comprises rare earths, TiO2 and zircon, through subsidiary Madencilik Isletmeleri
the resource contains a 2bn tonne mineral suite, from which AMR will extract 700m. tonnes of ore to produce 3.5m. tonnes TiO2 concentrate, among other minerals
in a three phase plan, AMR proposes to conduct 100 tph hydromining during Q4 2010-2011, 400 tph dredge mining 2011-2012, and 400 tph dredge mining 2012-2013
Argex Mining ilmenite near Baie Comeau port, Quebec, Canada Canadian explorer Argex is planning construction of a 600,000 tpa ilmenite processing plant from its La Blache project
development brought forward from 2013 to Q2 2012
initial production could be 30-50,000 tpa
Argex claims the ilmenite feedstock can be used by chloride and sulphate route TiO2 producers
Henan Billions titanium dioxide Jiaozuo city, Henan, China planning to increase capacity by 50,000 tonnes to 200,000 tpa TiO2
also installing another 300,000 tpa sulphur-burning facility to support expansion would make Henan the country’s biggest producer and exporter of TiO2 pigment
Lanxess black and yellow iron oxide Krefeld-Uerdingen, Germany; Jinshan, China; Porto Feliz, Brazil in Q4 2010 Lanxess completed a new €3m. pre-filter unit at its Krefeld-Uerdingen iron oxide plant as part of a global capacity expansion programme
Lanxess will invest a total of €20m. ($27m.) in three sites to meet growing global demand for iron oxide pigments
current capacity is 350,000 tpa at its operations in Germany, China and Brazil, the largest of which is the German plant, with a capacity of 280,000 tpa
this year Lanxess constructed a new black iron oxide pigment plant in Jinshan with 10,000 tpa capacity, in addition to existing yellow iron oxide pigment facility
Rockwood Pigments iron oxide, titanium dioxide USA Rockwood Pigments has developed the first range of coloured pigments, Solarox, which have functional properties that respond to sunlight enables surfaces to self-clean, reduce air pollutants, and inhibit microbial growth
Sunrise Resources barytes Bantry, County Cork, Ireland looking to restart an historical barytes resource in Ireland for filler sector
mineral processing testwork carried out by SGS Mineral Services UK showed high grade concentrate could be produced
white and off-white pigment grades were tested by a European barytes processor
Sunrise aims for modest-sized underground mining operation feeding a low cost gravity separation plant, producing high-value filler grades
Trimex Group ilmenite, rutile Srikakulam, Andhra Pradesh, India Started commercial production of Srikurmam minsands deposit in June 2010
aiming to produce 200,000 ilmenite, 6,000 tpa rutile, 6,000 tpa zircon, 60,000 tpa garnet and 50,000 tpa sillimanite
invested $54m. in the initial phase of the project, which included a pilot plant, bulk samples, hydrology, social and environmental studies, engineering and mining licence agreements Plans to invest another $867m. until fiscal 2017-18 to expand the extraction areas, increase processing capacity, upgrade technology and boost R&D

Pigment prices

non-metallurgical grades are set to rise in Q1 2011 but the volatility of the South African rand made negotiations difficult. South African chrome ore producers saw production costs double on the recent appreciation of the rand, while transport and power costs also increased by 20 and 25%, respectively.

Iron oxide: Chinese synthetic iron oxide pigment prices, both red and brown, gained around $30/tonne in December 2010, taking brown pigment prices to $1,030/tonne and red pigment prices to around $980/tonne, both bagged FOB China.

One Chinese pigment producer told IM: “With the devaluation of many currencies worldwide against US dollar, the prices are going to rise. Being the leading country of production of pigments, the prices of Chinese pigments will rise thanks to the appreciation of RMB against USD.”

Titanium dioxide: 2010 was a rebound year for TiO2 pigment producers, as the market fundamentals supported strong growth in output relative to 2009 after demand increased substantially. In early 2010 producers were holding record low levels of inventories, so during the year there was a need to produce more than demand in order to restock to normal seasonal levels. But demand was more robust than anticipated, and inventories levels remained lower than normal.

Selected pigment and feedstock prices (2009-10)