Inside iodine

By Mark Watts
Published: Tuesday, 22 November 2011

Production problems in Japan and Chile this year have led to supply shortages and an unprecedented spike in prices. With demand growth expected to continue throughout the decade, the world’s established producers must expand capacities to fill the deficit

Atacama Minerals’ Aguas Blancas mine, Chile:
The Atacama is the driest desert in the world
Atacama Minerals

The past nine months have been an unusual blip in one of the most stable industrial mineral industries. The Tohoku earthquake, water shortages in Chile and robust demand combined to create a perfect storm, blowing iodine spot prices up to record levels.

Events showed that in a finely-balanced industry with few producers, small disruptions on the supply side can have a disproportionately large effect on the global market.

The global iodine industry is characterised by the dominance of Chile, Japan and the US, which together supply over 95% of the world’s demand. And with annual demand at around 30,000 tonnes, it is a relatively low-volume business.

The supply side is concentrated, but iodine use is spread widely across over 10 main applications, led by x-ray contrast media, biocides, pharmaceuticals and LCD screen technology.

Iodine, from the Greek ‘iodes’ meaning violet, is mainly found in three environments - sea water, subsurface brine and caliche nitrate ore.

Chile has become the highest-volume, lowest-cost supplier, thanks to the abundance of iodine found in the caliche ore of the Atacama Desert.

The South American country has by far the world’s largest known iodine reserves, hosting over 9m tonnes, according to the US Geological Survey.

The caliche ore is leached with an alkaline solution to form sodium iodate. This crystalises and is processed further to produce high-purity iodine.

In the world’s other two major producing countries, Japan and the US, iodine is produced from brines associated with natural gas.

Japan hosts 5m tonnes of iodine reserves, which are largely extracted from the Minami Kanto gas field in Chiba prefecture, east of Tokyo.

The US iodine industry is centred round the Andarko Basin in the south-central state of Oklahoma, where three companies extract the mineral from the brine at depths between 1,500 and 4,000 metres.

Caliche ore processing at Atacama Minerals,
Chile. The company is planning to double its
output over the next two years
Atacama Minerals

Market leader

Chile’s caliche ore zone hosts four established iodine-producing companies: SQM SA, Cosayach, ACF Minera SA and Atacama Minerals Ltd.

The South American country’s iodine industry is dominated by SQM, a diverse speciality chemicals group, which produces over a third of the world’s iodine and derivatives.

Due to SQM’s dominant position, the company holds a strong influence over the price of iodine from Chile, which is exported to the developed regions of Asia, Europe and North America.

SQM produces iodine independently and, through its joint venture with US-based Ajay North America LLC, processes organic and inorganic iodine derivatives.

Ajay-SQM Group, which according to SQM is the world’s leading iodine derivatives producer, has production plants in the US, Chile and France.

SQM operates four operations in Chile that jointly produce iodine and nitrates from caliche ore: Pedro Valdivia, Maria Elena, Nueva Victoria and Pampa Blanca.

In February 2010, the company announced it would suspend production from Pampa Blanca and ‘El Toco’, a mine within Maria Elena, due to decreased global demand.

But SQM told IM all production facilities were restarted by the first quarter of 2011 due to recovery in demand.

“Nobody expected the recovery, so we needed to reopen those mines because the demand was so strong that we didn’t have any inventories,” said SQM spokeswoman Isobel Bendeck. “We are now at full capacity with the four mining operations.”

“We are seeing a very strong recovery in demand now, but we do not have more capacity,” she added.

Due to the increase in demand for iodine and the relative lack of new supply coming on stream, SQM plans to increase capacity to 14,000 tpa, up from 12,000 tpa, by 2014.

The improved market conditions were reflected in SQM’s second quarter results. The group’s Iodine and Iodine Derivatives division increased sales by 35% year on year to $117.2m.

This is more than double the revenues for lithium products - an industry in which SQM is also the world’s biggest producer.

Chile challenges

One of SQM’s competitors in Chile, Atacama Minerals, hired a new management team in October to try and turn the company around.

The first major task for the incoming team, which was brought in from Vancouver-based Red Back Mining, is to expand capacity to take advantage the strong market conditions. Atacama Minerals produced 1,256 tonnes at its Aguas Blancas mine in 2010 and expects to produce about just over 1,000 tonnes in 2011.

“Our team is aiming to reinvigorate the Aguas Blancas operation. We aim to at least double production in the next 12-18 months to an annual 2,000-2,300 tonne range,” the company’s new president, Simon Jackson, told IM.

“At the same time, we are targeting industry average costs, which will lead to a solid margin and earnings for our shareholders,” he added.

The company reported net losses in 2010 and the first half of 2011, with profits last
year impacted by the appreciation of the Chilean peso and higher costs for mining contractors.

Atacama Minerals expects the expansion to cost $15m. The majority of new capacity will come from the agitated leach plant, which is in its final commissioning stage.

“We are confident that our team can implement these changes and deliver a significant increase in production. At the same time, our exploration team Ð also ex Red Back - are aiming to double the reserves in the next 12 months,” Jackson said.

Another Chilean mining company, ACF Minera, is also expanding its production capacity through a joint venture with Japanese trading group Toyota Tsusho Corp.

The companies have jointly invested in the Algorta Norte project in Antofagasta state to produce 4,000 tpa iodine - around 13% of current global production.

In May 2010, Toyota announced it had invested ´6bn ($77m) for 25.5% stake in project, which has reportedly cost a total of $110m.

A source from the Chilean iodine industry told IM that the Algorta Norte project was officially inaugurated on 15 November.

According to a local media report, the project will be fed with water from a 75km sea pipeline and three pumping stations.

Chile’s second largest producer, Cosayach, has also been investing in expanding capacity, but is faced with more pressing challenges.

The family-owned company has a nameplate capacity of 7,500 tpa iodine, which is mined at three operations: Negreiros (40%), Soledad (40%) and Cala Cala (20%).

The operations produce an iodine solution which is brought by trucks to the Cala Cala refinery to produce prilled iodine or iodine flakes, as well as a by-product of nitrates.

The biggest challenge facing the Atacama Desert producer is a lack of water, which has limited production to around 4,000 tpa under normal conditions.

The company reached record capacity of 500 tpm during 2007, but will this year produce about 4,000 tonnes in total.

“We have been trying to expand capacity,” said John Porter, commercial manager, mining, at Coyayach’s parent company Grupo Errazuriz. “We have invested substantial amounts of money in mining equipment and new trucks.”

“We used to have 35-tonne trucks; we now have 65-tonne vehicles. We have improved a lot the mining yields and the mining costs as well, but unfortunately we have not been able to increase output much.”

“As a matter of fact, we have reduced production over the last three years because of a lack of water.”

On top of the long-term lack of water, Cosayach has a more acute problem in the form of water rights.

Over 20 illegal water wells installed near the Cala Cala operation were shut down by the government in September, according to local media reports.

“In the understanding of the authorities, some of our sources will not be recognised as a legitimate water source under the water code,” Porter said.

“We have been using water under the mining code, but when there is a scarcity of water it looks like some rights are stronger than other rights. So we have to close some of our wells, which have been operating for over ten years now under the mining code.”

Cosayach said it is working with authorities to find a solution to the problem, including buying more water rights and putting up a seawater pipeline.

“The seawater pipeline should be in operation by the beginning of 2013 Ð for 250 litres/second - which is enough to produce 3,000 tpa of iodine,” said Porter.

“Until the water issue is solved, we might have to reduce our production for about 30-40% from current levels - from 4,000 tonnes to 2,500 tonnes. In my personal opinion, this should be solved in the second quarter of 2012.

According to an industry source in Chile, a fifth Chilean iodine producer named Bullmine started production three months ago.

With a project located near Iquique city in northern Chile, Bullmine is thought have exported two or three containers to the US East Coast.

“Their nominal capacity is 1,500 tpa if they ever solve the ever-present problem of water shortage,” the source told IM.

Gas extraction

The US iodine industry has historically been centred round the south-central state of Oklahoma, where iodine extraction started in 1977. Three companies now extract iodine from natural gas wells in the deep subsurface of the Andarko Basin.

The largest plant is operated by Iochem and is located near the town of Vici in the northwest of the state.

The plant reportedly has a capacity of 1,500 tpa, which is largely sold as part of a long-term contract to German pharmaceutical company Schering AG.

The Woodward iodine plant is owned by Japan’s largest producer Ise Chemicals Corp., while North American Brine Resources operates a smaller plant in Dover.

A fourth producer, Iofina Inc. has started small-scale operations in the states of Texas, California, Montana, Oklahoma and Wyoming.

The group uses a proprietary wellhead extraction technology, which is comparable to that used in the iodine-gas fields in Mobara, Japan.

Iofina will also offer the technology to third-party producers on a contract basis, meaning the company has the capability to expand production without acquiring further properties.

“Iofina is very small, but they have an interesting technology, which can be operated on a truck trailer or a modular basis,” said David McNeill, senior analyst at London-based Roskill Information Services.

“If they can increase the numbers of truck trailer and modular units in the field they can process more brine and obviously produce more iodine. In five years’ time they may well be a much more important producer than they currently are,” he added, estimating Iofina’s current production at 100-150 tpa.

Chile, Japan and the US together account for about 95% of global iodine supply. The world’s fourth biggest producer, China, produces iodine as a co-product in the extraction of sodium alginate from seaweed.

Commenting on the possibility of new major players in iodine supply, McNeill said: “Azerbaijan has been planning a major expansion in output for well over a decade, the same with Turkmenistan.”

“They could conceivably reach 1,000 tpa each and may become steadily more important,” McNeill said, but added: “There’s no long-term reason why Chile won’t continue to dominate.”

Prices rocket

Iodine spot prices had been largely stable for years until 2011, trading in a range of $28-34/kg (95% min, drums).

Demand growth was steady leading up to a blip during the global economic crisis in 2009, when the need for iodine dropped by around 15%. This was countered by a 9% drop in supply from Chile in 2010 - production fell to about 15,800 tonnes from 17,400 tonnes Ð keeping prices stable.

The start of 2011 saw prices creep up to the high end of the historical range to $32-34/kg, before the Japanese earthquake on 12 March created an environment in which the spot market rocketed.

In the days following the earthquake, it transpired that the catastrophic event had a twin impact on the iodine market, which would see spot prices triple over the subsequent months, hitting $80-95/kg by the end of June.

The damage caused by the earthquake and tsunami at the Fukushima Daiichi nuclear power plant in northern Honshu caused radioactive iodine to leak into Japanese food and water supplies.

This triggered worldwide panic buying of potassium iodide tablets (KI) as far away as the US and Europe. The pills are used to reduce the ability of the thyroid gland to absorb and retain radioactive iodine.

Speaking to IM in late March, when spot prices had risen to $40-50/kg, an iodine producer said: “The spot price spike is a knee-jerk reaction to the panic buying of KI because of the Fukushima nuclear plant situation.ÊIt will likely normalise as soon as the situation is under control.”

“Demand was strong before the crisis due to production shortfalls in the US and Japan, this just exacerbates the shortage as stocks are snapped up and production rates will have to play «catch up« for a few months,” the source added.

An iodine consumer in May said that KI was becoming available on the spot market, but was “almost impossible” to buy just after the earthquake.

Unfortunately for iodine buyers, the supply shortfall situation was exacerbated further by a second effect of the earthquake.

Industry sources reported that damage from the earthquake had disrupted iodine production and supply within Japan itself.

The industry is located near to coastal Chiba prefecture to the east of Tokyo, and is the world’s second largest iodine production hub after the caliche deposits in Chile.

Producers in Japan’s iodine industry include Ise Chemicals Corp. and Godo Shigen Sangyo Co.

Japanese production was disrupted for at least three months after the earthquake, industry sources claimed, although Japan’s producers did not release any information on the damage.

Industry participants questioned told IM that Japanese production has still not recovered and that a lack of supply from the country could become a longer-term issue for iodine consumers.

Michele Favre, research director at Chile-based consultancy SignumBOX, said: “Japanese producers have not recovered from the earthquake, and we can expect some time before we see their production at pre-earthquake levels.”

SQM’s Isobel Bendeck said the impact on the market was not as bad as many in the industry had forecast.

“At the beginning after the earthquake, customers thought there would be a big, big constraint in supply from Japan,” she told IM.

“But we have seen that in reality there is only a little bit less iodine supply. People at first thought that they would sell 1,000 tonnes less in 2011, but in reality they only sold about 400 tonnes less. So no big, big jump there,” Bendeck added.

Should Japanese production recover to pre-earthquake levels, producers there are unlikely to increase capacity further in the coming years.

“Japanese producers have been operating close to their estimated nameplate capacity in recent years. Output was last reported as 9,282 tonnes in 2007 from an estimated capacity of 10,700 tpa,” McNeill said.

Japanese plants have to cope with corrosive brine and some with processing chemicals such as chlorine. This means that plants require regular expensive maintenance, which is a key reason why Japanese production costs are thought to be higher than those in Chile, McNeill explained. This is offset to some degree by the revenue brought in by their natural gas production.

“There have been no reports in recent years of Japanese companies increasing iodine capacity and they may have been concentrating on producing natural gas,” said McNeill. “The recent increase in iodine prices, if sustained, may encourage some Japanese producers to increase capacity if they consider the required investment worthwhile.”

Nevertheless, iodine spot prices continued to rise throughout the year, with widely varying quotes depending on the source of the product and the type of contract.

Strong outlook

Iodine is still trading in small quantities on the spot market in a range of $80-95/kg with larger container loads trading at lower prices. Many industry sources believe prices will soften in 2012, but supply disruptions Chile could keep the market tight.

“Even though we have seen higher prices, we had not seen an increase in production. In Chile, producers’ margins have not increased in the same proportion as prices. This is mainly because they are facing an increase in energy and water costs,” said Favre.

World-leading producer SQM expects the average price to be even higher next year as the contract prices move higher to mirror the spot market.

The Chilean group sets its volume contracts for a full year, but renegotiates contract prices quarterly. Around 75% of its sales are contracted, with 25% going through the spot market.

Bendeck said: “We have seen constraints in the local market. That is also why there is a scarcity of iodine in general and why the prices are increasing so much.”

“The market is growing at historical levels but there is less iodine in the market,” she added.

SQM believes the average price for 2011 - contract and spot - will be in a range of $38-40/kg, up from $27/kg last year.

“Next year average prices could be over $40/kg - $40-45/kg maybe but not more,” said Bendeck.

“For the remaining part of this year and next year, prices will stay at higher levels. In 2013, I don’t know what the quantity of iodine in the market will be, but we are seeing a little bit of constraint this year and next year,” she added.

John Porter of Cosayach said there was “no doubt” that global prices will be strengthened by his own company’s supply constraints.

Versatile mineral

Iodine and its derivatives are used in a diverse range of applications, with no single end use accounting for more than a fifth of global demand.

There are no substitutes for iodine in the majority of its uses, which is a big advantage to iodine producers amid today’s sky-high prices.

Research group Roskill expects demand for iodine to rise by an average of 3.5% a year to 2014 driven by optical polarising film (OPF) for liquid crystal displays (LCD), x-ray contrast media and biocide applications.

The number one application, with about 20% of the world market, is x-ray contrast media. This is used to enhance the visibility of structures and fluids in medical imaging.

Industry commentators expect x-ray contrast media will be a solid area of growth for iodine demand over the next decade driven by developing countries in Asia, Latin America and Africa.

Another major application expected to drive iodine demand is OPF, which is used in LCD screens.

“The main demand growth in Asia is going to come from OPF. Virtually all it is made in Asia, in either Japan, Taiwan or South Korea. But that assumes everyone is going to stay with LCDs rather than move over to plasmas or OLEDs,” said McNeill.

“OLEDs and plasma are currently more expensive than LCDs but the differential is likely to narrow in the future. However, LCDs are expected to remain the most commonly used technology for at least the next five years,” he added.

Iodine used in x-ray contrast media and OPF is increasingly recycled. Roskill estimates that global secondary iodine capacity is 5,000-7,500 tpa and that over half is located in Japan. Much of the rest is controlled by SQM and recycled waste from OPF production in Asia. Bayer is also known to recycle waste produced from x-ray contrast media production in Germany.

SQM also noted the rise of recycling, saying in its review of the industry: “Iodine recycling is an increasing trend worldwide.”

“Several Japanese producers have recycling facilities where they recover iodine and iodine derivatives from iodine waste streams”.

SQM said that iodine recycling at present is related to LCD consumption, and represents about 15% of global sales.

“It is estimated that 70% to 75% of the world recycling was done by Japanese iodine producers,” the Chilean group added.

Meanwhile, environmental legislation in the US is supporting the use of iodine-based chemicals as pesticides in agriculture.

The use of methyl iodide (iodomethane) is replacing methyl bromide (bromomethane), which has been banned under the Montreal Protocol and phased out by my most countries over the last ten years.

Methyl iodide is now registered as a pesticide in the US, Mexico, Morocco, Japan, Turkey and New Zealand and its approval is pending in several other countries.

The pesticide, manufactured by Japan-based Arysta LifeScience Corp., has proved controversial among some US scientists and environmental groups. The substance is a known carcinogen.

Arysta argues that the chemical, which has been used in some US states since 2008, has not been associated with any illnesses. Opponents claim the effects of exposure could take up to 10 years to show up.

Historically, the main applications for iodine have been in the pharmaceutical industry, which now represents about 13% of global demand.

“Pharmaceuticals are still an important market for iodine. Demand in this area tends to be steady and is likely to follow overall changes in global GDP,” said McNeill.

While the use of potassium iodide (KI) for anti-radiation tablets spiked this year, the application only represents a small fraction of iodine use.

McNeill explained: “The amount of iodine consumed in anti-radiation tablets is very small in terms of overall demand.”

“There will probably be a short-term increase in iodine demand to restock KI but the amount of material consumed is likely to be under 100 tonnes.”

Although iodine is without substitutes for many applications, its use in disinfectants could come under pressure amid higher prices.

One Europe-based iodine consumer told IM: “There are some areas of iodine usage where this element cannot be replaced. But in some fields it can be replaced by other products.”

“For example, using iodine as disinfectant - even though iodophores have many advantages over other disinfectants, the current price makes it hard to compete with other similar products,” the source added.

Although there are many factors that will influence demand for iodine over the coming decade, it is the supply side that will most affect the industry in the near term.

Consumers faced with price hikes will be hoping for an end to production problems in Chile and Japan, along with capacity expansions from both new and established producers.