Talc in transition

After many years of global consolidation, from a corporate perspective the talc industry seems to have entered a transitional period. The world’s two leading producers, Luzenac Group and Mondo Minerals BV, accounting for some 36% of the market, are changing ownership.

In February 2011, Rio Tinto Minerals (RTM) finally offloaded its talc business, Luzenac Group, and found a ready, if not unexpected, buyer in Imerys -the deal is undergoing formal approvals and is expected to be complete later in 2011.

In March 2011, Mondo Minerals BV was put up for sale by its parent of four years, London-based private equity group HgCapital, which is awaiting a buyer.

Meanwhile, the market remains cautious amid a “wait-and-see” strategy, looking forward to see how the two transactions will impact the market.

“The global talc space is in a bit of a flux at this time, with many transactions pending and a new landscape is likely to evolve over the next six to 18 months.” Mitchell Koppelman, vice president, strategic planning, Minerals Technologies Inc. (MTI), explained to IM.

“So anything we might say now will more than likely be moot in short time,” Koppelman added.

World production of talc is about 7.5m. tpa, the main producers being China, since the country overtook the USA, followed by India (see table p.40).

The main market for talc is paper (40%), although its paper filler application, as opposed to pitch control, is decreasing. Talc’s biggest growth area is in plastics (18%; see talc at a glance panel below).

The industry is getting back on stream from the global recession. “It is safe to say that talc suppliers have benefitted from the (slight) business turn upwards since the 2008-09 recessionary period,” said Koppelman.

Corrado Fabi, from Italy’s Industria Mineraria Italiani (IMI) Fabi SpA, described to IM the industry as “stable in advanced economies, growing in South East Asia and South America”.

Compared to 2009, markets have improved markedly. As Bob Virta, talc analyst at the US Geological Survey (USGS) underlined to IM, many of the industries that consume talc have increased output in 2011, “although they probably are tentative about expanding too rapidly given the lingering effects of the economic recession”.

“In the USA, it looks as though the large producers are recovering faster than the small producers, likely because of their more diverse markets and customer base,” Virta commented.

However, he highlighted that “the housing foreclosure issue in the USA still affects the talc industry, with construction markets being slower to recover than manufacturing markets”.

Sushil Kothari, president of India’s Golcha Group, noticed that in terms of volume, the talc market is stable. “However, there may be a shift from one segment to another.” he declared to IM, notably the paper industry from talc to calcium carbonate in South Asia. “It is also increasing in polymer and speciality uses,” he added.

The industry also has to overcome a few challenges, the main one being availability of bright grades with consistent quality. “Limited availability of pure and white talc from China with increased prices has created a gap in demand in supply and space for other pure and white talc supplying countries,” said Rakesh Kumar, general manager - marketing, at India’s Golcha Associated Group.

As a result, the trend is expected to go to lower tonnages and higher value. “In the USA and many western European countries, growth has reached a plateau and more emphasis has been placed on developing more advanced products which will command higher prices rather than simply on improving tonnage sales,” explained Virta.

A few major players

Ranking first, Luzenac Group, until recently owned by Rio Tinto Minerals (RTM), the industrial minerals division of UK-headquartered Rio Tinto, has clearly emerged through a series of acquisitions as the leading player, accounting for 23% of world talc demand with about 1m. tpa capacity.

Luzenac is followed by Finland’s Mondo Minerals (13%) in second place, which was acquired from European ground calcium carbonate producer (GCC) Omya AG by private equity firm Hg Capital, London, in 2007. Mondo produces about 800,000 tpa.

Chinese producers account for nearly 33% of world supply, while leading western players include Italy’s Industria Mineraria Italiani (IMI) Fabi SpA, and USA’ Specialty Minerals Inc. (SMI), part of Mineral Technologies Inc. (MTI).

IMI Fabi produced about 300,000 tonnes worldwide in 2010. The company revealed to IM that the main development in 2011 “will be in Australia to further develop the white talc mine at Mt. Seabrook”.

RT Vanderbilt Co., USA, ceased mining talc in Q1 2008, and processed ore from stockpiles until April 2009.

Add to this the two Indian producers, Golcha Group and Golcha Associated Group, and you have the main players dominating world trade in talc (see chart p.38).

China leads the market

With a talc reserve of about 55m. tonnes, resources of 247m. tonnes, according the Ministry of Land and Resources, and an estimated 200-300 talc mines, China is the world’s leading talc producer.

China produces 2m. tpa - 33% of global output - and hosts eight major producers. The five provinces of Liaoning, Guangxi, Shandong, Qinghai, and Jiangxi account for 90% of China’s talc output (see chart).

Since the 1980s, the country had been the largest talc exporter but the government started to implement administrative control over talc export quotas in 1996, therefore reducing export volumes that year from 1.59m. to 1.03m. tonnes.

As reported by Jia Xiu Zhuang, director at Haichen MinChem Co. Ltd, the first issue was the outcome of controlling the export quota volume, followed by the reaction towards market changes.

The international market has always been the major driver of Chinese talc industrial development. However, changes in the domestic market have captured attention in recent years.

Before the mid-1990s, the majority of Chinese talc, mainly low grade talc products, was used for paper filler. However, this part of the business started to shrink in the 1990s, rapidly declining in the 2000s. Even without the limitation of export volumes in1996, talc exports began to dwindle quickly after 1996.

Contrary to this, middle to high grade talc used in plastic, paint, and cosmetics has seen tremendous growth in recent years. After the 1990s, talc demand grew from the plastic market boom, this was the most important application and growth point for Chinese talc exports after 1995.

At present, 50% of the export market is destined for plastics demand, followed by paint and cosmetic products.

In 2009, Chinese production of paper, paint, automobiles, and home appliances reached number one in the world. These markets are the key application areas of talc, and each has huge market potential. The Yangtse River Delta and Pearl River Delta are the main talc consuming regions.

“The future key growth market is in the plastics field, particularly polypropylene, which is used in the automobile, home appliance, and packaging industries, their annual growth rate will be maintained at around 5-10%,” forecast Jia.

Virta from the USGS believes that Asian markets still have room for growth because their talc-consuming industries are still expanding. “Growth in Asian talc sales will eventually slow as the talc markets mature but that will not be for quite a few years,” he said.

In India, two major producers dominate the market: Golcha Group followed by Golcha Associated Group. Both located in Jaipur, Rajasthan - the main producing state - they supply markets such as cosmetics and polymers with high quality material and speciality grades.

According to the British Geological Survey (BGS) data, total production in the country in 2009 was about 820,000 tonnes, a 21% increase compared to 2005.

In Rajasthan, talc accounts for about 85% of the total production of India. There are mainly two belts for high grade quality talc - Udaipur and Bhilwara. However talc production is also reported from other parts of Rajasthan including Dausa district. Production of talc increased by almost 37% between 2008 and 2009.

Ajay Kulshreshtha from AK Minerals Consultancy Services reported to IM that Associated Soapstone Distributing Co., in Udaipur, is to expand micronising capacity by adding a jet mill to produce 35-40,000 tpa micronised talc. The company’s present talc production is about 300,000 tpa.

Vardhman Group, also exploiting the Udaipur belt, has plans to increase production to 200,000.

Combined production from the Udaipur belt is expected to increase to 660,000 tpa, and from Bhilwara is expecetd to reach 400,000 tpa talc.

Kulshreshtha commented: “The rising trend in talc production is going to continue because there is no direct competition from the foreign suppliers due to its purity, whiteness and competitive price range.”

“The policies of the central government have helped the mine owners to meet international standards and competitiveness” Kulshreshtha added.

 Golcha Group, which has three mining operations in Rajasthan, produces 300,000 tpa with a capacity of more than 400,000 tpa. In 2009, the company opened a 36,000 tpa talc processing plant in Rayong, Thailand, operated by M/S Golcha-Chemintac Co. Ltd.

The company exports its products mainly to Asia, Africa, Australia and Europe, supplying the polymer, cosmetics and specialities end markets.

Golcha Group revealed to IM that expansion work is in progress to further increase the capacity. “We have a planned increase in our Thailand plant capacity to meet the demand from South East Asia,” said president Sushil Kothari. The company is also working on developing new micronised products for polymers and speciality.

In addition, Golcha plans to establish a processing unit in Europe. India’s leading talc producer, which “had a very active interest in Luzenac” could potentially be interested in acquiring Mondo Minerals in order to fulfil its European expectations, Khotari revealed to IM (see below).

Golcha Associated Group, the country’s second largest talc producer, produces 200,000 tpa of talc powder at its mines located in Bhungapat, Devpura and Devla in Rajhasthan, and processes talc at its facilities in Udaipur, supplying the paper, plastics, paints, and automotive segments.

Rakesh Kumar , general manager - marketing, told IM that the company plans to develop its assets. Golcha Associated plans the expansion of its grinding facilities in terms of new factories and new hi-tech machines for fine material production (up to 1.5 micron top cut), and plans to “produce nano talc on a commercial scale”.

According to Kulshreshtha, the consumption of talc for paper filling in the paper industry has been greatly reduced owing to the change in paper manufacturing technology. “Therefore demand may increase marginally due to increase in paper production only,” he said. Demand for paper coating is expected to grow by 10% in 2011-2012.

North Korean talc shows high qualities suitable for most applications. It is a pure talc with 97-98% talc and only trace amounts of chlorite and quartz. According to the BGS, the country produces an estimated 50,000 tpa.

In 2005 Yasheya Ltd started to export magnesia products from North Korea to Europe and has also started to transport some talc. The company ships between 5-15,000 tpa North Korean talc.

Mondo Minerals also produces talc from North Korea as it holds a 51% share in a talc mining jv since 2006, with the remaining 49% held by Korea Kwang Ob Trading Corp., a government-owned organisation.

The jv produces 1-1,500 tpa of high grade white talc lump that is sold to Mondo.

In June, private equity investment trust HgCapital, Mondo’s mother company since 2007, was challenged over its links to North Korea and the fact that the mine may have used political prisoners in its labour force.

Contacted by IM, HgCapital declared that political prisoners have never been used in the labour force that works in the mine, underlining that a 1,000 tpa production “equates to only 0.2% of Mondo’s sales”.

“Nothing has changed and there is no necessity for Mondo to change the terms of its engagement,” HgCapital commented.

An industry source explained to IM that even though foreign mining companies try to practice regular controls over the work condition of local workers in the country, it remains difficult to be totally sure of what is going on over there.

“But I would be surprised if they were using political prisoners to work in these mines as they want to start working with foreign companies in order to develop their mining resources,” the source said.

Supply sector consolidation

With the continuing trend in world consolidation, including within China, US-based RT Vanderbilt Co. Inc. exiting the talc market in 2009, and the sale of Luzenac and Mondo Minerals this year, the corporate landscape of the talc market is undergoing considerable change.

Although the industry is buzzing with expectation, talc players remain cautiously optimistic about what will happen to the two companies, and how it will impact the market with their holding of about 36% of the global talc market.

“Consolidation is probably good for countries with many small operations such as China,” Bob Virta, USGS, commented to IM. “I am cautious about consolidation that will reduce competition too much though. For example, the USA is probably near that threshold with only three major producers. It probably is the same in many other countries.”

The USGS analyst does not think that a small amount of consolidation will affect the talc markets too much. “Consolidation should increase efficiency so it may actually slow a rise in talc pricing. Although I have concerns about too much consolidation, the talc industry may at this stage be such an internationally traded commodity that a little consolidation may not result in much of a reduction in competition,” he explained.

For Rakesh Kumar, general manager - marketing, Golcha Associated Group, this “will lead to quality products to market at competitive prices... as the smaller player will gradually phase out due to non viability.”

“The bigger players will tie up with global partner to take advantage of each other in terms of technology, freight advantage etc.” Kumar commented.

Corrado Fabi believes that the current trend of consolidation is “good because overcapacity will be limited. It will improve service and quality levels,” he declared to IM.

Sushil Kothari, Golcha Group, does not think that the transaction would “have any significant affect as the same level of international production is likely to be maintained”.

“On the supply side, the Imerys acquisition of Luzenac demonstrates commitment to talc and provides the opportunity for strategic development of the mineral,” commented David Stuart, RBH, which trades talc worldwide.

“RBH see this as positive for the industry as a whole and hope that a similarly committed investor will emerge for Mondo,” said Stuart.

Imerys nets RTM’s Luzenac

As had been expected by much of the market, Imerys SA, continued its acquisition strategy by finally acquiring the world’s leading talc producer Luzenac Group from Rio Tinto Minerals.

On 23 February 2011, Rio Tinto Plc received a $340m. binding offer from Imerys for its talc assets operated by RTM.

Imerys is unable to comment on the move until the deal is formally concluded, expected by the end of 2011. Luzenac’s integration into Imerys be one of the first tasks of Imerys’ new chief executive officer, Gilles Michel. The deal represents Imerys’ most significant acquisition since its £756m. takeover of English China Clays Plc, then as Imetal, in 1999.

The acquisition looks to be an ideal fit for Imerys’ mineral portfolio, in particular complementing the group’s existing calcium carbonate and kaolin supply to the paper, paint, and plastics markets, in addition to kaolin supply to ceramics - talc ticks all these market boxes.

The Luzenac group has a number of talc deposits which supply various beneficiation plants in Asia-Pacific, Europe, and North America. In some cases the plants are supplied by lump talc imported from China and elsewhere (see table).

As Rakesh Kumar from Golcha Associated Group underlined to IM, “This will help Imerys extend its coverage to almost all the talc consuming segments building on its existing relations with these segments who are already buying calcium carbonate from them”.

Industrial minerals consultant Ian Wilson considers that “talc is the perfect fit for them”. “They will be able to offer different blends and different mixtures Ð a whole host of things,” he explained.

Most players in the talc industry seem to see the deal in a positive way. Bob Virta from USGS believes the acquisition will be good for the industry as Imerys is dedicated to industrial minerals. “The purchase will fit nicely with Imerys’ other industrial minerals ventures. ÊIf they add a couple of other types of industrial minerals, they can truly be called a one-stop shop for ceramics, paper, and a few other market segments,” Virta said.

“This would be a good move for Imerys and for the talc industry,” Corrado Fabi, IMI Fabi, confirmed to IM, adding: “We need our leader!”

Mondo Minerals for sale

In March 2011, the world’s second largest talc producer, Finland’s Mondo Minerals BV, was put up for sale by its parent of four years, London-based private equity group HgCapital.

Mondo Minerals has an estimated 13% share of the 6.1m. tonne global talc market with a total talc processing capacity of 800,000 tpa, supplying filler applications in the paper, plastics, adhesive, rubber and sealants markets (see chart).

Wulf-Dietrich Keller, former CEO of the Amsterdam-based group confirmed to IM at the time of the announcement that shareholder HgCapital “is actively considering disposing of Mondo and is exploring this avenue.”

According to a recent Reuters report, HgCapital has hired Lazard to advise on the divestment, and is hoping to net some Û300-400m. ($433-564m.) from the sale.

But HgCapital would not give further information at time of press. “We never comment on market speculation regarding its [HgCapital’s] investments,” spokesman George Hudson told IM.

A move from India?

The industry has not stopped buzzing since the HgCaptial announcement. Interestingly, this comes at a time when the Chinese talc industry, long a major world supplier, is facing challenges in quality and supply.

With Imerys clearly out of the picture with regard to picking up Mondo Minerals on anti-trust grounds, and industrial minerals conglomerate Sibelco having earlier commented that it was not interested in Luzenac, it might be that a Chinese or Indian player could make a move for the Finnish talc producer.

As an industry source told IM, “Mondo investors have carefully picked their time. My view is that whilst Luzenac was on the market, Mondo would not get much interest from buyers. Now that Luzenac is effectively bought, Mondo probably sees itself as the only apple left in the bowl.”

As a consequence, it is very likely that Mondo is looking to catch any parties on the bounce which had an interest in buying Luzenac but failed.

“Indian or Chinese companies are certainly favourite as buyers. If either had a funding plan in place to make a bid for Luzenac, I would expect them to enter into negotiations for Mondo. My money is on India.”

In India, only one player would have the capacity to make such a deal: Golcha Group. Sushil Kothari, president, confirmed to IM the company’s interest in Luzenac when it was put on the market. Therefore, acquiring Mondo would appear as a logical move.

“With our long experience in the talc business, we are interested in expanding further globally by either acquiring ongoing talc operations or growing on our own outside of India. We have already expanded our activity very successfully in East Asia and are now looking at Europe,” Khotari said.

“Mondo Minerals has its own limitations but we could be interested only if it is realistically valued,” he added.

In contrast, Corrado Fabi, IMI Fabi, believes that “another private equity firm will likely be the buyer”.

Virta, USGS, who tends “to favour a company that will want to have a long-term interest in Mondo Minerals” is however concerned that “some investment firms may view any such purchase as a short term venture”.

Prices stable

Talc prices are quite stable at present , rising 3% on average (see table). Khotari from Golcha Group described them to IM as “internationally stable, with a maximum 2 % growth” while Corrado Fabi pointed out that they are “low for finished products, high for raw materials.”

“Prices are improving as compared to 2009 to mid-2010. But simultaneously the costs are also increasing,” Fabi warned.

According to Kumar from Indian competitor Golcha Associated Group, talc prices are however “coming back to the fair values as compared to the cheaper talc supplies from China in earlier days”.

In India, Ajay Kulshreshtha from AK Minerals Consultancy Services reported prices in the range of $100-600/tonne depending upon the purity, whiteness and micron size.

In June, Rio Tinto Minerals announced that was planning a 5% price increase on talc products from its Montana, Vermont and Canadian operations.

The increase, which was effective from 15 July, aims to offset the effects of a continuous rise in energy and fuel costs directly related to mining, processing, packaging and transportation.

“We have a strong track record of improving operating efficiencies and these efforts will continue,” said Kent Cutler, vice president sales for the Americas region.

“At the same time, it is essential that we adjust our pricing to offset cost increases beyond our control in order to maintain the service levels and product quality that make a difference to our customers,” he added.

On 1 June last year, Rio Tinto increased prices of talc products from its North American operations by 8% in order to cover increasing transportation and production costs.

The slight increase is expected to continue. Virta from the USGS believes that “prices will probably continue to increase with increased operating expenses”.

“Many new talc products are likely to require more processing, also resulting in higher prices,” Virta said, while Fabi confirmed that “finished product prices will probably go up”.

Meanwhile, Khotari, Golcha Group, foresees that prices “shall remain as per the historical trend which is approximate 2% growth per year, however underlining that “a better realisation due to change in product mix for different segments can fuel better growth.”

But it remains difficult to forecast an exact trend in prices at present at it is very likely they will be affected by the sales of Luzenac and Mondo in the mid-term.

“A changing competitive landscape can influence pricing strategies, one way or another,” pointed out Mitchell Koppelman, MTI.

“Whilst it is unlikely that costs will fall, we do anticipate a period of stability during which the significant price increases we have seen in recent years will moderate,” said David Stuart, RBH.

New trends

The industry is going through significant changes, in terms of regions, quality, and applications.

The paper filler industry switching to calcium carbonate at the expense of talc remains one of the main challenges while the automotive, coating, paints, polymers and cosmetics industries remain the end markets with the best potential.

Kumar from Golcha Associated Group pointed out to IM that “the supply of low grade talc mixture to small users” as a difficulty, in addition to developing “customised products from lower grade talc”. “Sustainable growth will become a major topic at all levels,” Fabi added.

In addition, the polymer industry is looking for value-added materials and finer material which can enhances their product properties, as underlined Kumar.

“For the next couple of years, the higher end talc markets offer the greatest potential. Markets such as paper, rubber, paints and, of course, plastics are likely to show the greatest growth,” Virta told IM.

Kumar sees new trends in the use of nano talc-polypropylene (PP) composites and very fine talc in the plastic industry as additive and performance enhancer and not merely as filler.

The construction based markets, such as adhesives, architectural paints, caulks, ceramic tile, joint compounds, roofing, and sanitaryware “may lag behind in terms of growth, at least in the USA and Europe.” Kumar added.

In terms of geography, Fabi underlined the growth of the Chinese talc industry.

“Opportunities are ample in European and Asian countries such as the Philippines, Cambodia, Thailand, and India in all segments where high valued talc is used for a specific function and application,” Kumar commented.

Among the newcomers, African countries are also coming up with good requirements of talc while “Saudi Arabia and Oman are witnessing good infrastructure development and a construction boom” Kumar added.

Outlook: challenging but recovering

The talc industry is expected to remain “very challenging for all players”, but will continue its recover, with some regional differences in pace.

“The obvious challenge is to hold on until the effects of the economic recession are history,” Virta commented to IM, adding: “This is likely to take at least two or three more years, given the debt issues in many countries.”

“In the best case scenario, we see a flat outlook in mature economies, more in Europe than in North America,” Fabi declared.

In the USA, it may take a few years before the talc industry reaches prerecession levels. “I do not think it will go beyond that given that the US markets are mature and reached a plateau in the early 1990s. The same will probably be true in Europe.” explained Virta.

As expected, Asia will lead the way while the Western economies tail behind. “It is a quite a different picture in Asia, the Middle East and South America where we can only discuss if the growth will be of one or two digits,” said Virta, underlining that growth in the region is likely to increase at a higher rate based on their economic growth in recent years.

Kothari, Golcha Group, observed: “We see significant opportunities in South East Asia, Europe, and South America. In India, the talc industry shall remain stable with around 2% growth per year”.

In terms of markets, a decline of the use of talc in paper, especially in paper coating, is expected while polymer, speciality, paints, and high value cosmetics will boost the industry.

Improving quality will also be on the radar. “Although it would have been difficult to avoid the impact of the 2008-09 global recession, producers may put even more effort into further diversifying their product lines and customer bases so they do not have their eggs all in one basket,” said Virta.

As Stuart from RBH explained to IM, “there are increasing opportunities for independent talc suppliers to identify and source the most cost effective sources for particular end applications”.

“Talc users are increasingly recognising that ‘one size does not fit all’ and are looking for specific performance from functional fillers,” added Stuart.

“Industry will gradually refrain from selling talc in lower end applications as bulk resources are getting depleted,” believes Kumar from Golcha Associated Group. For him, the industry “will develop newer applications where more revenue can be earned from smaller quantities”.

Koppelman from MTI expects growth to continue as buyer businesses reach and probably exceed pre-recession operating patterns. “Talc has truly become even more of a global market, with premium/value added products having global footprints,” he commented.

The consolidation trend is expected to continue, notably in China. “The recession probably has shaken out some of the smaller players in the talc industry and will likely result in some consolidation,” Virta pointed out. Further consolidation is expected to continue, particularly in China and Asian countries.

In the short term, the main source of concern for the industry remains the expected sale of Mondo Minerals, while the closure of Imerys’ Luzenac acquisition remains on the radar for all players.

But how will these two transactions impact the market? Koppelman anticipates a changing selling landscape and expects other large players to look for new ownership.

Overall, it is difficult to say much more before Imerys reveals its talc strategy when the Luzenac transaction is finalised, and before knowing who - an investment group, an Asian or a Western mining company - makes an offer for Mondo Minerals.

Talc at a glance

• Crystalline hydrated magnesium silicate mineral with chemical formula, Mg₃Si₄O₁₀(OH), with a theoretical chemical composition of 63.37% SiO₂, 31.88% MgO and 4.75% H₂O.
• World production: 7.45m. (USGS, 2010^e)
• Main producers: China, USA, India, Finland, France (crude)