Price Briefing: Shaky fundamentals felt in minerals markets as economy wobbles

By Siobhan Lismore-Scott
Published: Wednesday, 06 June 2012

With bearish headlines flashing across screens this month it would be logical to come to the conclusion that all markets, minerals ones included, were failing.

With bearish headlines flashing across screens in May it would be logical to come to the conclusion that all markets, minerals ones included, were failing.

As IM went to press it was still unsure if Greece was to stay in the Euro or leave. While Greece is home to many industrial mineral deposits and companies - S&B, the bentonite, bauxite and perlite producer is based there - its exit from the Euro could have far-reaching consequences for other economies and markets.

The vote on 17 June will be closely monitored around the world - that goes without saying - although many industrial minerals companies articulated their concern in May.

“Europe remains a concern,” Rio Tinto Minerals’ chief commercial officer, Bob Katsiouleris, confided to IM. “Especially southern Europe - notably Italy and Spain. Countries which have been traditionally excellent markets for borates in ceramics and frits are seeing very, very low periods or points of demand.”

The Cookson Group also said that it expected weaker demand in its main end markets in Europe this year in its interim management statement.

The bearishness in the Eurozone and the UK was reflected in the Manufacturing Purchasing Managers Index (PMI) indexes, which slipped again in May. The Office of National Statistics also revealed that GDP in the UK fell by 0.2% in the first quarter of 2012, led by a fall in construction.

But despite all this doom and gloom, industrial minerals companies - for the most part - posted positive results in their first quarter assessments.

“Despite the fear of a deep recession in Europe expressed in the course of the exacerbating sovereign debt crisis, the steel market, and consequently the refractories market, showed a surprisingly robust development in Europe,” world-leading refractories group RHI AG explained.

Also in Europe, industrial minerals giant Imerys alluded to the constraints being felt at the moment in its Q1 results, released at the end of April.

End markets for its products have recorded slow growth in Europe, the French conglomerate admitted, but growth in steel markets was still up year on year. And dry bulk shipping costs for industrial minerals were also on the rise again, analysts reported.

Lithium

One industry which made little to no mention of the macroeconomic climate was lithium, which, judging by producers’ results issued over the course of May, expected demand to remain healthy.

SQM, the largest lithium carbonate producer in the world, posted a 36% increase in profit in its first quarter results.

Rockwood Lithium, a division of Rockwood Holdings Inc., announced that it was increasing the price of all of its lithium salts products by $1,000/tonne.

The changes are effective 1 July 2012 and will encompass lithium carbonate and lithium hydroxide, Rockwood said.

Prices of lithium hydroxide (56.5-57.5% LiOH, large contracts, packed in drums or bags, del Europe or US) are at around $7/kg according to the IM prices database. Lithium carbonate, (large contracts, del continental US) are in a range of $2.50-3/lb.

The announcement, unsurprisingly, was welcomed by Galaxy Resources, which quoted First Analysis Securities Corp. who said the price increase equated to a 22% rise.

The company said in its first quarter results that sales in its lithium segment had increased year on year.

It also recently announced plans to invest $140m in a new lithium carbonate production plant in Chile.

Prices in the lithium market are stable at the moment - according to market participants, but as one told IM: “I expect more will jump on that particular bandwagon,” signaling that increases may be expected from other producers come July.

Energy bites

Imerys Performance and Filtration Minerals released a statement in early May stating that it had “no choice but to implement a system of energy surcharges (ESC) across its range of European products as contracts allow”.

The level of the surcharge applicable to each product will be calculated based on independently published indices for the cost of natural gas and oil, from the ICE website. ICE is an energy exchange and pricing service.

In soda ash, as with other markets, energy remains a problem.

European soda ash producer Novacap told IM that despite higher pricing in soda ash markets: “Prices are not high enough in order to recover normal margins,” CEO Pascal Bandelier exclaimed.

“The current situation is slightly improving, but absolute figures are still very high,” he added.

Soda ash prices are - for now - stable, but companies hinted that prices may rise in the next quarter to offset energy price hikes.

FMC Chemicals Group pointed to stronger prices in soda ash driving the company’s profit for the first quarter of the year. Profit was at $46.1m, up $6m when compared to Q1 2011.

Elsewhere, in talc markets, sources told IM that prices have increased ahead of all expectations as energy and mining costs bite.

In July 2011, IM reported that talc prices were expected to increase by between 2-5% as per historical trends.

But market sources in May said that in certain areas of the world the costs of mining, energy and transport have escalated so much that in some areas, notably in South Africa, prices have doubled.

Prices for Chinese talc (normal, 200 mesh, ex-store UK) are now at around $307-327/tonne, China-based sources claim. For 350 mesh, prices were at $312-337/tonne. This, sources said was due to higher energy and freight costs.

Prices for talc mined and processed in South Africa have risen extraordinarily, sources claimed; and energy costs, in particular, are the reason behind the hike.

Electricity prices in South Africa have rocketed in the last three years - by 54% and another 20% price hike is expected in June.

This has led to some claiming that prices need to increase by up to $200/tonne across the board.

But for some, rising energy costs meant only one thing - an uptick in the need for oil and gas exploration, and oilfield minerals.

Bentonite producer Amcol admitted that its leap in revenue from its oilfield services (24% growth year on year in Q1 2012) was down to higher selling prices.

Higher selling prices comprised roughly 78.3% of the increase in gross profit, the company added.

Bentonite prices edged up in January this year, according to the IM database, with most grades increasing by around $10/tonne or more.

Titanium dioxide

While some industries were experiencing an uptick, news out of China suggested that the recent bull run experienced in titanium dioxide (TiO2) may be ending.

Analysts in China said that domestic TiO2 prices were ticking lower on the back of falling demand in construction and paint industries in China.

Domestic ilmenite has dropped from RMB 2,500/tonne ($397/tonne) at the beginning of 2012 to a range of RMB 1,700-1,800/tonne ($270-286/tonne) with some producers being quoted at RMB 1,300/tonne ($206/tonne), market sources confirmed.

In April 2012, the average Chinese TiO2 producers’ capacity utilisation decreased to 60% and some small-sized factories even shut down, Investment Advisor said.

Yet Chinese Customs statistics show that the export of TiO2 in January and February rose by 20.5% year on year. The figures show that China exported 67,574 tonnes in the first two months of the year but imported just 11,397 tonnes. This is a decrease of 44% y-o-y.

Supply already outstrips demand. In the paint and coatings market, which claims a 60% share of TiO2 output, utilisation is only expected to grow by 10% in the Chinese 12th five-year plan. Conversely, it is expected that 40% of total capacity will fall by the wayside.

Elsewhere, the TiO2 market looked very healthy. Rio Tinto outlined how higher prices in industrial minerals had led to the group investing in its titanium feedstock business.

Sierra Rutile also had a time for reflection with the release of its 2011 results. In this, the company outlined that former “waste product” zircon revenue quadrupled to $11m in 2011.

The company stated that it had moved to monthly spot pricing in rutile markets for 2012 as prices rose rapidly from the end of 2011. This is a company looking ahead, rather than back as it seeks to expand its project in Sierra Leone.

Graphite

Prices for natural graphite have started to fall for the first time since March 2009 following slowing demand from major industrial markets and a stuttering Chinese economy.

High quality flake grades have fallen by up to 12% as the strong demand from the last 18 months.

Traders in the European market are attributing the declines to an industrial slowdown from the continent’s biggest consumer, Germany.

“Germany has experienced a period of high consumption recently so a small fall is to be expected,” one major trader told IM.


ONE TO WATCH
Sulphur

Prices are expected to remain strong until 2013, as the market tightens.

ONE TO WATCH
Graphite
Graphite prices were assessed lower at the end of May, but some market participants believe another dip will take place in July as more supply comes on the market.

ONE TO WATCH
Potash

As Uralkali predicts stability in the Russian market and India reduces subsidies for fertilisers, some predict a step down in fertiliser mineral prices. For more discussion, see p.20-21.

ONE TO WATCH
Bauxite

Market participants recently indicated that IM should change its grades and only report the following (lump 0-30 mm bulk, FOB China):

- Shanxi Round Kiln 86/2/3.15

- Shanxi Rotary Kiln 86/2/3.15

- Guizhou Round Kiln 86/2/3.20

- Guyanese RASC 86/2/3.20

We would appreciate any feedback on this. Please send to Siobhan Lismore, Prices Editor, at: slismore@indmin.com


Graphite flake prices come off



Borates grades, May 2011-May 2012