Zirconium’s cloudy future

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Published: Wednesday, 21 December 2011

Prices for zircon sand and downstream zirconium chemicals tripled over 2010-2011, pushing consumers to look for alternative materials. Alister MacDonald examines zircon’s substitution potential, but cautions that demand in 2012 is anything but certain

As zirconium silicate (zircon) prices have tripled in the space of 18 months it is timely to review the effects on downstream zirconium product prices and provide an outlook for the future.

The dramatic rise in zircon prices has been a welcome change of fortune for mineral sands companies, where the price has broken through historical resistance levels to settle at about $2,500/tonne, FOB Australia. However, this has created endless headaches for downstream customers, who have found it difficult to pass on price increases, as well as balance stocks to meet customers’ needs, and manage working capital.

As we enter 2012, the outlook for zircon demand has been clouded by a significant slowdown in Chinese demand, as well as concerns over European debt and liquidity levels. Is reduced zircon demand due to substitution or to a general economic slowdown?

Table 1 shows the changes in zircon and downstream zirconium materials during the past 18 months. From a steady price of $800-900/tonne throughout the global financial crisis of 2009, zircon sand prices started increasing in the second half of 2010. Zircon demand steadily increased and drew down stocks throughout the supply pipeline, from mineral sands companies all the way through to customers.

By the end of 2010, a point of recognition had been reached where the zircon sand shortage was real and security of supply had become more important than price. Most people were aware of a looming zircon shortage, as demand had been increasing steadily, and had been a well-broadcast theme during the past few years.

Zircon demand in China had been growing at about two times GDP for the past 20 years and the country was now the largest end market. The outlook for new zircon supply was limited with no new production expected before 2013-2014 at the earliest. However, there was a general complacency that any shortage would be borne by others, so a false sense of security prevailed.

With strong demand in China, spot zircon sand prices in China became a barometer for unmet demand and prices pushed ever higher. Consumers who had either reduced demand or walked away from contractual obligations during the global financial crisis suddenly found that they needed more zircon sand but their normal suppliers were already committed to supply other companies. This forced companies to purchase additional quantities on the spot market, which added further urgency and tension to spot sales.

Continued high spot zircon sand prices in the second and third quarters of 2011 ensured that CIF China prices would end the year at a record high, however a drop in demand in China during the last quarter has left everyone guessing when demand will recover in 2012. Spot zircon sand prices in China have come off their highs and are now below CIF China prices. Anecdotal evidence suggests that some sales of zircon sand have been concluded at lower prices as cash flow concerns force some companies to quit stocks. However, it is difficult to gauge the real situation as many companies still hold stock which was bought at lower prices in previous quarters.

Prices have increased for the whole family of value-added zircon end uses, including opacifiers for ceramic tiles, zirconium chemicals, zirconium dioxide, and zirconium metal. However the rate of increase has varied according to the dynamics of each market, with strong demand allowing higher price increases to be pushed through as customers competed to secure supply. Many zirconium chemicals and chemical zirconia producers were forced to allocate supply, with some taking the drastic step to suspend production of chemical zirconia, and turning away new customers.

Zirconium oxychloride (ZrOCl2.8H2O) is the primary zirconium chemical used to produce other zirconium chemicals and chemical zirconia products. ZOC contains approximately 35-36% ZrO2.

Figure 1 shows the change in zirconium prices between the second quarter of 2010 and the third quarter of 2011 for a range of products on a 100% zirconium dioxide (ZrO2) basis. While the price of zircon has increased by $1,600/tonne to $2,500/tonne during this period, the increase on a 100% ZrO2 basis was $2,460/tonne. Prices for downstream zirconium chemicals and zirconia products have increased significantly more.





Fused zirconia

Fused zirconia prices increased by $3,500/tonne, or just over $1,000/tonne more than the zircon price alone, as demand for fused zirconia also exceeded demand as producers struggled to secure sufficient zircon. Producers in Australia and South Africa also had to contend with strong currencies, so some catch up in prices was likely for those producers to offset currency effects. Fused zirconia prices in November eased back to about $6,000/tonne as stocks of fused zirconia built up.

ZOC

The zircon shortage also created a ZOC shortage, which allowed producers to increase prices and choose whether to sell ZOC or process it further into other products. ZOC prices increased by approximately $6,650/tonne during this period, or around $4,200/tonne more than the zircon price alone. Table 1 does not show it, but spot ZOC prices reached almost $4,500/tonne, FOB China, during 3Q 2011 before dropping back.

With the current slowdown, ZOC prices dropped further towards $3,000/tonne in December, as ZOC stocks were replenished by producers and end users reduced purchases, but prices at the end of 2011 remained well above the prices in 2010.

While the zircon shortage and subsequent ZOC shortage have been the main drivers for higher ZOC prices, this is only part of the story. Other Chinese ZOC production costs have also increased, including labour and process chemicals such as caustic soda and hydrochloric acid.

Environmental compliance costs have also become more onerous, with government authorities making more concerted efforts to enforce existing regulations. The new environmental laws which came into force on 1st October 2011 are also adding to operational costs, particularly for waste water treatment and control of waste gas emissions.

Lastly, the Chinese yuan appreciated almost 7% against the US dollar between mid-2010 and December 2011, so all of these factors need to be considered when analysing the higher costs for ZOC.

Chemical zirconia

Chemical zirconia products (99.5% ZrO2) are typically produced from ZOC by either direct calcination or precipitation. In either case, ZOC is essential so the zircon shortage created a ZOC shortage, which in turn created a chemical zirconia shortage.

Chemical zirconia prices have followed ZOC prices higher, with several producers restricting output in favour of selling ZOC on its own rather than converting it to chemical zirconia. The recent weakness in ZOC prices has been slower to flow through to chemical zirconia prices, with prices as of December 2011 having dropped by 10% or less.

Zirconium basic carbonate

ZBC, or zirconium basic carbonate, has increased by approximately $8,000/tonne, or $5,500/ tonne more than the zircon price during this period, which is the highest increase of all. Customers depending on one or two suppliers for ZBC and having stringent technical requirements meant that the zircon and ZOC shortages allowed suppliers to increase prices further, and choose between making and selling ZOC or converting it to ZBC or other products.





Zircon outlook for 2012

The November 2011 TZ Minerals International (TZMI) ‘Asia in Focus’ Congress on mineral sands enjoyed a record attendance as participants listened to the latest presentations from industry experts. A slowdown in zircon demand across the main markets provided a lively topic for discussion. With China now being the main driver for growth in zircon demand, it is an open question as to whether the current slowdown is just part of a general construction slowdown in China, or whether substitution is occurring at a significant level.

To quantify the effect of the recent zircon price increases, it is timely to look at two of the main end uses for zircon, namely ceramic tiles and zirconium materials. According to zircon industry experts TZMI, ceramics and zirconium materials are forecast to account for 74% of total zircon demand in 2012, with ceramic tiles at 56% and zirconium materials at 18% (see IM May 2011: Zircon substitution - myth or reality?).

To assess this in more detail, a comparison of the effects of zircon price increases on ceramic tiles needs to be evaluated.

Ceramic tiles

Table 2 looks at the effect of zircon price increases on opacifiers used in matt glazes for floor tiles, as well as the more demanding requirement for zircon in white and super white bodies for porcelain tiles. An increase in opacifier prices from $1,200/tonne to $3,000/tonne has a markedly different effect on overall raw material costs for the three types of tiles considered.

The increase in the zircon opacifier price is only minor at 3 cents/m2 for matt glazed floor tiles, while it is significantly greater at $1.80/m2 for white body and $3.60/m2 for super white body porcelain tiles. If porcelain tile production costs are $10/m2 the effect of increased zircon prices will add approximately 20-40% to total production costs. However, the ceramic tile industry is fragmented with numerous tile producers so there is not a lot of attention paid to convincing consumers of the overall effect of raw materials price increases, so resistance to price increases is greater.

Nevertheless, such increased costs for porcelain tiles is driving a significant effort to develop alternatives to zircon, with aluminium oxide (alumina) being the front runner as it is cheap by comparison at $650/tonne. However, alumina is inferior to zircon opacifiers, but anecdotal reports from China suggest that substitution of zircon by alumina may be very significant with substitution rates over 30% being reported.

The total amount of zircon consumed in porcelain tiles in China and elsewhere is an open question with few companies having good confidence in their numbers. Estimates of zircon consumption for porcelain tiles from industry sources vary between 200-300,000 tpa in 2010. Of this, Chinese consumption is likely to be in the range of 100-200,000 tpa. A bottom-up analysis of tile producer consumption patterns is required, which is a time-consuming and costly exercise to carry out. A substitution rate of 30% would therefore range between 60-90,000 tpa less consumption of zircon, so the effect on demand is significant.

With the current slowdown in Chinese demand for zircon, it is difficult to determine how much is due to the reduced rate of construction, versus substitution of zircon by other materials. What is clear is that many tile factories in China have either reduced or stopped production and the situation is unlikely to change until after Chinese New Year.

Soft demand for zircon in China is occurring at a time when most commodities related to construction have also witnessed reduced demand and lower prices in recent months. However, the impact of higher zircon prices on total raw material costs for porcelain tiles is significant as zircon is the most expensive raw material.

Zirconium chemicals & zirconia

The lack of commercially available alternatives for zirconium (Zr) is one the key reasons why the downstream zirconium materials prices increased by more than the zircon price alone. Virtually all of the zirconium materials shown in Table 1 have been produced from zircon, which highlights the strong dependency on this critical raw material.

As discussed previously, there are only a few thousand tonnes of natural zirconia (baddeleyite) produced each year, so zircon is required for over 98% of zirconium materials produced. The development of polymetallic ore bodies containing zirconium and other valuable co-products will be necessary to offer an alternative to zircon in the near future.

Alkane Resources completed a detailed feasibility study for the Dubbo Zirconia project in September 2011 (see IM online: Alkane targets up to 1m tpa for Australia zirconia project), which will produce approximately 16,000 tpa of zirconium products (100% ZrO2 basis), as well as light and heavy rare earths, and niobium. With the strong growth rate outlook for zirconium materials, one Dubbo-sized project is required each year to meet demand.

The risk of substitution of zirconium materials, particularly zirconium chemicals and zirconia, by other materials is also low due to its many favourable performance properties for different end uses. In some cases, demand for zirconia has increased in the past year at the expense of other materials, such as cerium oxide for polishing applications where prices increased from $10/kg to $150/kg, and have now dropped back to around $55/kg (see IM online: Rare earths ’11 - higher prices trigger search for alternatives). This puts the price increases for zirconium materials into perspective, and makes the increases since mid-2010 look relatively mild by comparison.

Conclusions

After the doubling or tripling of zircon and zirconium materials prices over the past 18 months, some respite from the supply shortages and price increases is now apparent. The slowdown in China and concerns over European debt levels has clouded the outlook for zircon and zirconium demand for 2012. In addition, the dramatic increase in zircon prices has raised the spectre of substitution of zircon in porcelain ceramic tiles, but the extent of substitution and/or designing out of zircon in ceramic tiles will remain unclear until later in 2012 when current stocks of zircon opacifier and porcelain tiles are consumed.

The heavy dependence of zirconium materials on zircon as a source of Zr has also been highlighted during the past year, with significant price increases experienced across the board, but much less so than rare earths, which are used in many of the same applications.

Contributor:
Alister MacDonald is the director of Technical Ceramic Marketing Services Pty Ltd, and has over 25 years’ experience in zircon and zirconium materials.