The zircon industry has seen
upheaval around the world in recent times with prices rocketing
from an average of $842/tonne (FOB Australia) in June 2010 to
$2,500/tonne this month. Recent softening demand has seen major
producers, like Iluka Resources, slashing production which is
likely to keep prices at current levels.
In China, the situation is quite
different with market sources indicating to IM
that there is an oversupply of zircon. This is being driven by
a declining construction industry on which zircon’s
largest end-use, ceramics, relies heavily.
Zircon is being stockpiled by
traders and producers alike. The estimates of the excess have
ranged from 50,000 tonnes to 150,000 tonnes but prices are
remaining steady with rumours persisting that major producers
could reduce output, a source indicated.
As the zircon produced in China is
used almost solely for domestic use, this should have little
effect on external markets where prices are steady. But new
zircon-heavy mineral sand deposits are coming online which
could change the shape of the market.
The prohibitive cost of zircon in
China has also led to new opacifier and pigment formulations,
which use at least 50% less zircon-based raw materials than
before. While mullite (calcined kaolin clay) and olivine can be
used as substitutes for zircon in the foundry industry,
substitution in the ceramics industry is more difficult.
Calcined alumina is a strong front
runner for partial substitution and averages much cheaper at
$700/tonne (98.5-99.5% min Al2O3, FOB
refinery, US). Substitution rates of about 30% have been
reported but a portion of zircon must still be used, slowing
any fall in demand that this substitution will cause.
This reduction in content is likely
to continue even when the Chinese housing industry picks up,
sources told IM.
Chinese construction: portrait of a suffering
industry
Zircon’s main use is as an opacifier in ceramic tiles
where it increases hardness, inertness, resistance to
corrosion, and adds low-sliding friction. These ceramics are
chiefly used in construction, an industry that is intrinsically
linked to the fortunes of the housing market.
In 2010, China was reputed to have
65.4m empty houses according to a survey by the State Grid
Corporation of China. The figure quoted in this survey has been
denounced by China’s power companies and other
organisations but the existence of a substantial number of
empty houses in China is undeniable.
Some have mentioned that there are
enough empty houses in China to accommodate the population of
France and this glut discourages further supply.
As the two graphs show, the growth
rate of investment and sources of funds have fallen to record
lows. This restriction in capital, the lifeblood of new
projects, will limit the number of new homes coming online.
This is likely to lead to serious stagnation in the
construction industry.
The effect of an excess of Chinese
homes has already been seen in the prices of new houses which
dropped again in May 2012 after a series of drops throughout
the year. But house prices have not fallen enough to stimulate
an uptick in demand as economists have predicted the fall to
continue.
The construction industry works
mainly around new housing and will continue to stagnate until
the housing industry picks up again. However, the
government’s recently introduced controls, which are aimed
at further cooling the over-inflated industry, make it unlikely
that the construction will receive its much needed boost.
