Mineral trade outlook: China, rare earths, frac sand, graphite
By Mike O'Driscoll
Published: Thursday, 01 March 2012
China concern 2013; trade driven by logistics, environment, resource development
This is a comment from Mike
O'Driscoll, editor of IM .
“A range of influencing factors are expected to shape the
future of international trade in industrial minerals as further
constrictions in supply from China are forecast for early 2013
and other factors see new trade patterns emerge.
Resource-to-market proximity – such as paper grade kaolin supply from
USA/Brazil to Asian markets – and limited resource
distribution – such as rare earths from China
to the rest of the world – remain a staple strong
influence on trade routes.
However, it needs to be stressed that so-called “critical
minerals” security is not the sole property of rare
earths, lithium, and graphite, as highlighted by recent EU and
US government raw material initiatives.
Source availability of the more humble aluminosilicate minerals
(andalusite, bauxite , kyanite,
mullite) or oilfield minerals (barytes, frac sand) are of equal
concern to their respective traders and consumers as they
remain in short supply and high demand.
In addition, the rapid development of specific market demand
“hotspots” will always create a sudden change in
demand for mineral trade – take the unprecedented demand
for silica sand for hydraulic fracturing ( frac sand ) in shale gas
exploration in North America.
Import reliance
Allied to the “critical minerals” issue is the
reliance by certain countries and industries on limited sources
that are becoming increasingly unreliable and costly –
namely, China.
Two examples include the refractory market of Japan's reliance on
Chinese refractory raw material supply, and the USA’s
>50% reliance on a variety of minerals from several overseas
sources including China (see illustration).
Some 60% of Japan’s refractory
raw material requirements are imported with a high dependence
on Chinese sources including graphite, fused alumina, dead
burned magnesia, and bauxite.
The USA has an import reliance of 100% for at least 10 minerals
(including bauxite, fluorspar, graphite, rare earths); 80-88%
for antimony, potash; 76-78% for barytes and silicon carbide;
68% for titanium minerals; and 50-56% for chromite, iron oxide
pigments, lithium, and magnesia.
China – future concern
Considered by many as the common denominator affecting much of
the trade in minerals, there is no doubt that China has (and
will continue) influenced trends in trade.
Right now, as has been well documented by IM, there is a
continuing sea change in trade flow regarding minerals and
China.
The government policy of increasing natural resource control,
discouragement of exports, crackdowns on environmental
pollution and smuggling, combined with strong domestic demand
(although muted a little at present) means no change to rising
prices and unpredictability in supply and grade quality.
So, the WTO gave the final thumbs down to China's appeal on its
export policy findings – probably no sweat there as China
seeks to implement no doubt long planned contingency measures
in the form of alternative tax regimes.
Already we saw last year the start of a natural resources tax
on coal, and in February 2012 mining tax rises were reported
for boron, magnesia, and
talc. In light of the WTO ruling, it’s considered
likely that China will now drop its export license system
– too late for H2 2012, but come 2013 it is not expected
to be renewed.
And in it’s place? Well, that’s the
concern.
In addition to the above-mentioned tax tweaks, it is speculated
that the government may draft in new regulations demanding
mineral exporters to be vertically integrated, ie. they must
own and operate, or be strongly affiliated to mines.
At the same time – and this could be the killer –
exporters must ensure acquisition of a range of
permits/licences covering mining, environmental, social care
activities. This may prove quite a challenge for certain
suppliers.
Therefore, should this come to pass, certain traders are
already anticipating a shortfall in Chinese mineral supply in
H1 2013 as China’s mining industry and trading fraternity
adjusts to such a new regime.
For certain minerals, such as magnesite, this has already
commenced to a large extent, but the casualty list is expected
to be high for fused alumina, bauxite, silicon carbide, and
graphite.
Vertical integration, environment, logistics
Other factors shaping trade include the increasing trend in vertical integration by
mineral consumers: this is particularly prevalent in the
refractories industry, but also spreading to other sectors
whereby consumers are simply securing their own mineral sources
and supply routes. 
Environmental impacts include the shadow of REACH in Europe,
for example, recently giving rise to an EU reduction on borates used in
detergents, but also the emergence of “secondary
sources” of raw materials from waste processing.
The latter “secondary sources” are emerging with
advances in processing technology and in some cases will be
closer to their end user markets than their natural source
counterparts, eg. foundry grade chromite sand recovered
from landfill sitesin Ohio.
New and innovative logistics solutions, whether technical
(cargo parcel concepts), or alternative routes(containers on
the Trans Siberian Railway; new rail links through
China/central Asia), are already seeing new trade patterns
emerge as they open up new sources.
Outlook
The future for minerals trade will be dominated by the
exploration and development of alternative sources to China
worldwide. Expect to see more activity in Africa , central Asia,
Middle East , South
America, and central and eastern Europe.
There is some potential within the EU, and certain requirements
are being highlighted by various EC initiatives, but the region
is far from mine development friendly.
But also note the potential of Afghanistan , Iraq
(projects already being evaluated), and even North Korea and
Cuba in the future. Ironically, there will be increasing
competition with China over securing such resources worldwide,
as the country seeks to meet raw material demand from domestic
growth.
However, at the same time there are opportunities to now export
to China (and India) as their domestic markets expand.
And expect to see more high volume consumers consolidate and
vertically integrate their raw material supply chains."
IM Editor Mike O’Driscoll was invited
to present
Mine to Market: International Trade in Industrial
Minerals ” at the Critical Mineral Resources
session of the 2012 SME Meeting & Exhibit held in Seattle,
19-22 February 2012.
Catch the latest trends and developments in oilfield
minerals trade at the upcoming IM Roundtable: Oilfield Minerals
Outlook, 20-21 June 2012, Houston.
