IM 2012 Round-ups: Titanium dioxide feedstocks

By John Ollett
Published: Friday, 21 December 2012

Prices for titanium dioxide (TiO2) feedstocks saw unprecedented rises during 2012, leading to increased profit margins for many existing producers and improved project economics for junior developers.

Prices for titanium dioxide (TiO2) feedstocks saw unprecedented rises during 2012, leading to increased profit margins for many existing producers and improved project economics for junior developers.

The increases were not driven by mining costs, which have stayed the same at around A$538-700/tonne for rutile and syn rutile, according to Iluka Resources, but driven more by limited supply in a booming end-use industry when there were no alternatives that could be easily substituted.

As was the case with its complementary mineral, TiO2 pigment, feedstocks started 2012 strongly, but waned in the latter half of the year when prices and demand for higher-grade feedstocks fell.

Storming out of the gate

The first quarter of the year brought strong results from the largest feedstock producers, Rio Tinto, Iluka Resources, and Exxaro Minsands (Tronox), as profits soared on high prices and solid supply. Iluka alone reported a 53%-increase in sales for the fourth quarter of 2011.

The group, which is based in Perth, Australia, posted revenues of A$434m ($449m) for Q4 2011, up from A$283.4m ($293m) during the corresponding period in 2010. Annual sales rose 76% to A$1.54bn. ($1.6bn).

Supply evolves

As the TiO2 pigment industry grew and developed, so too did its feedstock supply. 2012 was a year of supply evolution as existing producers ramped up and new producers approached production.

Of the stable, big-three feedstock producers, two were in the news this year following changes in ownership. Rio Tinto finalised its $1.7bn purchase of a majority stake in leading TiO2 feedstock producer Richards Bay Minerals (RBM) in March, bringing its stake up to 74%.

The acquisition was for BHP Billiton’s 37% stake in RBM, with the remaining 26% owned by a consortium of local communities and businesses (24%) and RBM employees (2%), in line with South Africa’s Broad-Based Black Economic Empowerment legislation.

Tronox also finalised its purchase of Exxaro’s minsands assets on 15 June 2012, completing a process that started in 2011.

Under the agreement, Tronox acquired all of Exxaro’s minsands operations, which include Exxaro’s 50%-interest in the Tiwest JV with Tronox in Western Australia, along with 74% of its KZN Sands and Namakwa Sands operations in South Africa.

While ownership was changing, other smaller producers began major upgrades of their production facilities to take advantage of market prices.

Far East producer IRC Ltd ramped up its ilmenite production by installing new separators for the material from its Kuranakh mine, bringing capacity up to 160,000 tpa.

Established producer Kenmare also continued with the upgrade of its Moma mine in Mozambique. The company started two dry-mining operations of 1,000 tph to supplement production, which slowed due the dredge encountering some clay-rich horizons.

The overall expansion is designed to increase capacity by approximately 50%.

In Australia, Matilda Zircon also commissioned its second short-term mine - Lethbridge South - in the Tiwi Islands with all of the heavy minerals content pre-sold to Tricoastal Minerals.

Sierra Leone-based Sierra Rutile also reviewed the potential for a new dredge and settled on dry mining, which it expects will start production before the end of 2012.

Sierra Rutile is targeting 28m tonnes of ore at its dry-mining project and aims to produce 30,000-35,000 tpa ore during an initial five-year period.

Ukrainian ilmenite producer Velta LLC made its first commercial shipment of ilmenite from its mining and processing complex in central Ukraine during Q2. The company is now ramping up to the planned annual capacity, according to Andrei Brodsky, company CEO.

Next year could also bring up to four new projects online and the effect of this new capacity, coupled with existing market weakness could further hamper the industry’s future.

Industry falters

Problems in the sector became more apparent by the end of the second quarter. Iluka Resources posted large falls in demand, with demand for rutile and synthetic rutile hit hard as sales-volume forecasts dropped 11-38% and 29-45% respectively. The company sold just 186,500 tonnes rutile and syn rutile for the first half 2012 compared with 246,100 tonnes in the first half of 2011.

“As the second quarter progressed, softer demand for pigment and pigment inventory build began to be reported, reflecting lower European demand and weaker global export flows of pigment,” the company said.

The industry had begun to falter by the third quarter. Titanium dioxide pigment production had fallen due to weak end-user demand and the dramatic feedstock price rises during 2011 meant that many pigment producers were unwilling to keep their inventories high.

Pigment producers began to move to a just-in-time system, whereby inventories were kept to a minimum level and only topped up when absolutely necessary.

Another effect of 2011’s price hikes saw pigment producers begin to switch to lower-grade feedstock mixes where possible during Q2 2012.

In another development, pigment producers with multiple plants that were no longer operating at capacity slowed production at plants with higher-grade feedstocks and compensated by running ones on lower-grade feedstocks.

What this meant was that rutile and synthetic rutile - the two highest- grade feedstocks - saw a serious drop in demand and prices. Titanium slag and ilmenite, on the other hand, remained more stable, but eventually the fall in demand began to affect them too.

The heavy weight of inventories

A severe problem that has built up around the industry is excessive inventories of feedstocks waiting for separation or shipping. Many feedstock producers are finding it difficult to unload these volumes and, as a result, are having to slow production at the mine site.

Feedstock companies that have the capability, such as Iluka Resources, have switched production to the lower-grade parts of their deposits to slow output while retaining the staff they will need when the industry picks up again.

Future for the industry

The feedstock industry has undoubtedly struggled during 2012, and will continue to do so early in 2013. Its profitability is linked to its main end market, the downstream pigment industry, and will only begin to pick up when that industry picks up, which is predicted to be mid-2013.