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