Price Briefing: Mixed reaction from results, all change (or not) from US and China?

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Published: Monday, 26 November 2012

November was a month which saw both the long-awaited outcome of the US Presidential election, and also - significantly - a change in leadership in China.

November was a month which saw both the long-awaited outcome of the US Presidential election, and also - significantly - a change in leadership in China.

While those in China told IM that the change has been received with a lukewarm reception domestically, in international markets the shift gives places a question over direction the country could take.

The new leader, Xi Jinping, has so far kept a relatively low profile in the international community and has been tightlipped about his vision for the economic direction of the country.

Jinping is a chemical engineer, and is expected to replace Hu Jintao as president who himself was trained in hydraulic engineering.

Wen Jiabao, premier, trained in geomechanics is expected to be replaced by Li Keqiang, holding a PhD in economics and a master’s and a bachelor’s degree in law.

With economics on equal footing with science among China’s top leaders, perhaps there will be an acknowledgement of the demands for economic reform.

In minerals markets, two sets of price hikes in lithium and ilmenite were blamed on high input costs and strong demand respectively, and the producers hinted that prices look set to climb for the foreseeable future.

Prices for antimony on the other hand have slowed to a crawl, bringing a sobering tonic to the bullish predictions of last month.

A spate of quarterly earnings statements have also seen some of the quieter minerals turn out as producers announce price increases.

Perlite, diatomite and mica made an appearance in Imerys’ third quarter report, while soda ash was hailed as a disappointing performer by FMC.

On a more positive note, Martin Marietta Materials, Inc said in its third quarter results that it does “see several positive trends in construction activity”. Despite this upbeat tone, the company’s specialities business revenue, which includes the magnesia arm of the company, was down slightly from last year.

Elsewhere, the UK emerged from recession during the last quarter, and commodity restocking in China pushed up shipping rates.

Slowing economic growth for the seventh consecutive quarter in China and flat figures for steel output were matched by bleak outlooks from some of the biggest hitters in the mineral and downstream industries.

This mixture of fortunes has been reflected in the pricing news IM obtained from the market over the last month.

Graphite

Graphite prices have remained stable in recent weeks, market sources informed IM in November.

The steadying of the graphite market, which had been sliding since May as a slow-down in demand began to deflate the mineral’s two-year price bubble, had been widely predicted by market analysts and observers.

“Additional supply will be needed to feed the demand for the 180 end products that require graphite,” Chris Berry, founder of the market research firm House Mountain Partners LLC, said, citing forecasted growth in demand from “next generation technologies (batteries)” underpinned by strong existing consumption from the steel industry.

Lithium

FMC Lithium Corp. said that it would be hiking lithium metal prices by 10% and the prices of some of its lithium end products by 8%, in a measure to pass on rising raw material and transportation costs.

The rise would be made from 1 November, the company said, which will see increased global prices for n-butyllithium and s-butyllithium and all specialty organic products by 8%.

Earlier this year, FMC increased its prices for lithium salts, citing a need to offset production costs and reinvest in the company.

Commenting on the increasing cost demands being faced by the company, Chris Senyk, FMC’s global marketing director, said: “During 2012 continued raw material price pressures and rising transportation costs has made this price increase necessary”.

But, Senyk insisted, “FMC continues to manage costs aggressively while reinvesting in our business”.

Ilmenite

Prices for ilmenite have continued to grow in a market where many end-users are switching to cheaper inputs (such as ilmenite rather than rutile), according to ilmenite producer IRC Ltd in its Q3 results.

The company said prices were rising 32% year-on-year, reaching $284/tonne for Q3 2012 from $212/tonne in Q3 2011.

Prices rose by $4/tonne quarter-on-quarter, even though other feedstock inputs, such as rutile, were under strong pricing pressure.

“Demand for ilmenite concentrate remains strong (...) IRC is seeing great interest from new potential customers - several trading houses from Japan have shown a keen interest and potential deliveries for 2013 are being discussed,” the company added.

Antimony

Prices for antimony trioxide, which rose strongly during the third quarter of 2012, have slowed as the market enters Q4, IM has learned.

Antimony trioxide and ingot prices have remained mostly stagnant during the first part of October, especially in the US, sources said.

Low US orders for antimony were reported for the initial weeks of Q4, and little to no change in demand is anticipated in the near-term.

The sluggishness in the US market has been attributed to uncertainty over the country’s fiscal outlook and downstream instability in the antimony supply chain.

Europe-based trading sources maintained that antimony prices were firming up in Europe, and that softening was limited mainly to Chinese antimony, owing in part to the poor quality of some of the material being imported.

Asian sources told IM that the antimony market was “cooling off” and that the price of stibnite (Sb) was weakening.

Fluorochemical

prices up

Fluorochemical prices in China have increased meanwhile, on the back of higher demand from downstream coolant markets and buyers stockpiling raw materials before mines shut down for the winter.

The domestic fluorspar price increased by almost 10% in the space of a single week in November to Chinese renminbi (Rmb) 1,600/tonne ($256/tonne).*

The price of hydrofluoric acid also edged up, while downstream coolant products, including R134a and R125, remained stable.

The price increases buck the downward trend seen in many other chemicals and petrochemicals markets, but is likely to be a mark of seasonality rather than an unexpected shift in the supply-demand balance.

November is traditionally the peak buying season for the Chinese downstream coolant market as downstream users, such as air-conditioning and automobile manufacturers, actively stock up coolant products to prepare for the May peak selling season.

Chinese mineral production also slows down over the winter season, when the freezing temperatures mean mining becomes impossible. This generally causes a short-term rise in the spot price.

Rare earths

Rare earths prices continued to slide in October and November as China, the world’s biggest producer and consumer of the minerals, reported the seventh consecutive quarter of slowing economic growth.

Prices for heavy rare earths have been least affected, with dysprosium oxide slipping slightly at the lower end of IM’s price range from $900-$1,000/kg to $890-$1,000/kg, while Europium prices remained steady in the $2,020-$2,320 range.

Asian sources told IM that demand and prices are continuing to fall gradually as the number of orders placed by buyers decline.

Destocking causing dips

Rare earths prices have been dropping as end users destock inventories accumulated during the panic buying phase of 2011. This was the general consensus amongst market participants at the Metal Events Rare Earth conference in Hong Kong in November.

The 2011 price spike was in part caused by this market alarm, but prices will not reach this level again sources indicated to IM.

“It is about stable pricing both for consumers and for producers,” one source outlined. “It has to be such, or end users will seek any available alternatives.”

Pricing stability has become a key issue in the rare earths industry as prices have dropped off considerably after their meteoric rise during 2011.

The market could experience another slight spike in prices in December 2012 as contracts are secured for H1 2013, which may lead to a measure of panic buying, sources said.

Overall, rare earth prices are moving towards more sustainable levels

TiO2

US-based global paint and speciality materials supplier PPG announced solid results for Q3 2012, saying it had seen a moderation of price increases for TiO2 raw material this year, and had even observed some modest decreases.

PPG has previously stressed the difficulty caused by higher TiO2 prices and has implemented measures to reduce its dependency on the raw material.

The last quarter of the year is traditionally a weaker pricing environment for pigments as end-markets slow down but PPG said it is still negotiating it Q4 TiO2 prices.

One analyst indicated that they have seen a $0.13/lb drop in TiO2 pigment prices.

Overall, TiO2 costs are up year-on-year, according to PPG CEO Charles Bunch, but relative to the increases seen throughout 2011 pricing has remained stable throughout 2012.

TiO2 peak “gone forever”

In Hong Kong, during an industry conference, delegates learned that the TiO2 price peak experienced in 2011 was “gone forever”.

Last year was a record year for the titanium dioxide pigment industry in terms of pricing and profits, but it was an aberrance that the industry is unlikely to see again according to David McCoy, managing consultant of TZMI.

“[2011] was a really high peak but we are not going to see that again anytime soon,” McCoy told the TZMI conference.

The increase in profits came from increased prices - which also compensated when volumes began to fall in Q4 2011 - and the increased prices were chiefly motivated by increases from feedstock producers, which were passed on the consumers.

Significantly, “global pigment demand has gone nowhere in the past 7 years,” said McCoy.

Demand for the white pigment has fluctuated around the 5m tpa mark with the most drastic movements being in 2010 and 2011.

As such, with no substantial increase on the horizon, and in fact with a possible decrease as construction wanes, there is unlikely to be sufficient demand to soak up the excess TiO2.

TZMI expect no return at all to growth until the middle and “we are more optimistic than others,” said McCoy

Perlite, diatomite, kaolin, mica

The world’s largest industrial minerals producer Imerys announced last month that it will be increasing its European prices for perlite and diatomite products by between 4-8%, effective 1 January 2013.

The hikes will be made by the company’s Performance and Filtration Mineral division which will also be raising European prices for all mica and kaolin products by between 4 and 6%, effective 1 Jan 2013.

Cost pressures through all elements of the mineral supply chain, from logistics to raw materials, were cited as reasons for the price increases.

“Price increases are necessary to achieve a sustainable product platform and meet customer demand,” the company said.

Imerys also recently increased its US prices for all diatomite, perlite, cellulose and silicate products by between 4 and 12%, effective 15 November 2012.

In January 2012, Imerys raised prices for diatomite and perlite by between 3% and 5% for European customers.

Soda ash and lithium

US-headquartered global lithium and soda ash producer FMC Corp. posted its quarterly earnings in November, reporting lower than expected prices for soda ash and a poor performance in its zeolites range.

The lower than anticipated prices limited the increase in earnings for FMC’s industrial chemicals division to 1% year on year for the third quarter of 2012.

FMC’s previously announced increases for its lithium prices (by 10%) and some of its lithium end-products (by 8%) have now come into effect, having been scheduled for 1 November.

Additionally, fellow leading lithium producer Rockwood Holdings said in its quarterly report this week that selling prices for lithium had been higher y-o-y during the three months to 30 September.

Ceramic proppants

CARBO ceramics, another major player in industrial minerals, also revealed pricing information this week, saying in its quarterly results that average proppant selling prices declined year-on-year (y-o-y) during Q3 2012.

The decreases, combined with lower sales volumes and higher freight costs meant that CARBO’s revenues for Q3 decreased 10% to $151.13m y-o-y. Net income for CARBO fell 35% to $23.89m down from $36.91m in Q3 2011.