Iron oxide is an important pigment
material for creating red, yellow and black colours in
concrete, bricks, paints, inks and a wide variety of other
materials. The construction industry - which accounts for the
majority of iron oxide pigments end use - suffered greatly in
the global recession and the after-effects linger on across the
As such, it is important to assess
if this situation has begun to clear and whether or not supply
of this critical pigment will be able to meet any new demand
Iron oxide production is centred on
three main regions - China, Europe and the US. China is the
largest producer - producing around 500,000 tpa, which is half
of global output - but consumes much of its output internally,
while Europe and the US produce 300,000 tpa each to make up the
majority of remaining global output.
Synthetic iron oxide makes up the
lions share of production, contributing 1m tpa on
average, while natural iron oxide normally contributes 200,000
LANXESS remains the worlds
largest iron oxide pigment producer with an output of 350,000
tpa synthetic iron oxide, produced from plants in Australia,
Brazil, China Germany, Spain, UK and the US. Rockwood Pigments
remains steady as the second-largest producer, with facilities
in China, France, Germany, Italy, UK and the US.
As China is the largest end user of
iron oxide pigments, it is one of the most important markets to
access. Despite any recent weakness in market demand caused by
the financial crisis, companies are continuing to expand
LANXESS will begin construction in
the second quarter of 2013 of a 25,000 tpa iron oxide red plant
in Ningbo, China.
The plant, with
state-of-the-art environmental standards, will initially have
an annual capacity of 25,000 tonnes [and] an investment of
about Û55m [$71m*], the company told
Construction will begin in
the second quarter 2013. The production start-up is scheduled
for the first quarter of 2015, it added.
Cathay Industries, another major
producer, is also constructing a new synthetic iron oxide plant
for yellow, red and black iron oxide pigments in Anhui
province, eastern China. The project, a joint venture with the
Tonghua Group, will commence production at 100,000 tpa before
expanding to 150,000 tpa and will sell into the Chinese
However, one existing threat to the
Chinese supply security identified by LANXESS was environmental
The increasing enforcement of
very stringent environmental standards in China is forcing
manufacturers in China to invest massively in the treatment of
wastewater and off-gas, the company told
Steven Spackman, Cathay Industries
managing director, agreed.
New policies will increase
the regulatory requirements and energy efficiency requirement
of iron oxide plants and environmental compliance will increase
the cost pressure for all iron oxide plants, he said.
However, Cathay has been
anticipating this for several years and believes that its new
plant in Tongling and expansions and upgrades to its Wuxi plant
will put it well ahead of the regulatory and
environmental requirements, Spackman said.
The US also saw some expansion,
with Rockwood Pigments continuing construction of its synthetic
iron oxide plant in Augusta, Georgia. While the full capacity
has not been announced, the plant will cost $11m and employ
nearly 100 staff.
This plant will be the first
synthetic plant to be brought online in the US in 35 years.
Natural iron oxides are also
produced in the US and, in mid-2011, Alabama Pigments Co.
increased mining at its McCalla, Alabama mine site.
These increases have all required
substantial investment in new plants and equipment, which could
hamper smaller producers, LANXESS said.
It remains to be seen how
many of the current manufacturers are financially able to make
this kind of investment and how many will have to pull out of
the market, it added.
We anticipate that, in the
medium term, some of our competitors will simply have to shut
down production - not just in China, but worldwide. The process
of market consolidation will continue, it said.
Iron oxide pigments main end market is construction, which
accounts for half of total output. The other main end market is
coatings, accounting for a quarter, with the remainder being
used in plastic, rubber, paper, glass, foundry and other end
The construction industry tends to
move in correlation to GDP, which is a measure of the average
income per capita. This means that as GDP increases, a
households income rises and it tends to invest in
construction products such as new housing and renovations.
Conversely, when GDP dips, a
households income falls and that household cannot afford
to purchase new premises or renovate or expand existing
property. Tracking a countrys GDP gives a good indication
of existing demand for iron oxide pigments.
The construction industry has had a
torrid time of late because of the global financial crisis. As
the financial markets collapsed in 2007-08, the construction
industry dipped sharply as home buyers and owners were unable
to afford mortgages. Iron oxide demand, in turn, fell.
The global downturn in this
[construction] industry sector has had a significant impact on
iron oxide consumption, Spackman told
Recent news has been more positive
and as many industries around the world begin to recover, a
tentative recovery has been seen too in the iron oxide
Demand has picked up
marginally after a significant drop during the global financial
crisis, but [demand] remains well short of pre-crisis
levels, Spackman said.
Construction, in particular, has
begun to rally, but a significant aspect of this recovery is
that it differs from region to region, giving a very different
demand picture for China, Europe and the US, Stefan Schlag,
senior consultant at IHS, told IM.
Chinas construction slides
Chinas construction industry has been the single largest
end market for iron oxide pigments for a considerable period.
Spurred on by traditional
prodigious growth rates, the market blossomed for many years,
but has recently experienced a serious dip.
This has been in part due to
Chinese GDP, which has remained above 8% (excluding 1998 and
1999) since 1990 (see Table 1). However, these growth
rates may no longer continue.
GDP growth has always been in
the order of 8% in past years, and a large part of this came
from infrastructure projects and construction in China. [But]
if you look into the future, or already to the end of 2012, we
have seen the growth rate drop below 8%, Schlag told
The Chinese construction industry
has grown in line with GDP, but by 2010 China was believed to
have 65.4m empty houses, according to a survey by the State
Grid Corp. of China. Although this figure has been challenged
by various other companies, the existence of a large number of
unoccupied homes is undeniable.
The Chinese government introduced a
number of restrictive policies to slow the expansion of the
housing sector, and resulting higher prices, which meant that
the construction industry stagnated as investors left the
In order to fund its targeted 8%
growth in GDP level, China tended to invest heavily in
infrastructure, but that is now coming to an end, because
too much infrastructure investment was allocated to projects
that had no use," Schlag said.
We expect GDP growth to slow
down, and we particularly expect GDP growth to slow down in
infrastructure projects, he added.
US construction follows
The global economic crisis crushed the construction industry,
particularly in the US, and it is still struggling to recover.
The lingering effects of that crisis, coupled with the limited
availability of finance, stopped the growth of the US
construction industry completely, rather than simply slowing
Governmental construction was hit
hard as government spending was slashed as rampant budgets were
reined in. This general weakness in the construction industry
has had an impact on iron oxide demand in the US.
In more recent months, it has been the
prospect of the fiscal cliff that has been affecting market
demand. The fiscal cliff is the date when a large number of US
tax hikes, spending cuts and incentive reductions all come into
effect as required by previously enacted laws. The intention of
this was to reduce the USs astounding national debt of
$16.432 trillion, which has increased by $5.8 trillion during
President Obamas term alone, according to USA
Many of these decisions were
deferred in a last-minute deal, but continue to create
uncertainty among businesses during the first half of 2013.
Businesses are very aware and
are going to be very cautious, Anika Khan, Wells Fargo
director and senior economist, told IM.
Theyll continue to be on the fence.
This has led to some uncertainty in
the US market, but there has been a noticeable increase in
activity, with spending on US construction projects climbing
beyond forecasts in December 2012. Outlays rose 0.9% to an
$885bn annual rate, the highest level since August 2009, after
increasing by 0.1% in November.
More recently, January saw an
unexpected fall following the biggest back-to-back gain in a
year, reflecting a slump in non-residential and government
projects. Outlays dropped 2.1%, the biggest decrease since July
2011, to an $883.3bn annual rate.
This cannot be regarded as a new
trend because construction industry data is notoriously
volatile from month to month. The overall trend for the US
construction industry is one of strength, which means, in turn,
that iron oxide demand is strong.
Europes mixed picture
The situation is very different in
If you look at Europe,
its a mixed picture, Schlag told
IM. It did pick up after the crisis,
[but] the construction segment in Southern European countries
is showing weakness.
This applies especially to Spain,
Greece and Italy, which continue to teeter upon their
respective economic cliffs with no clear signs of a return to
Northern Europe fares slightly
better, but those countries that are part of the EU continue to
be locked into the problems of their southern neighbours, and
the uncertainty that this generates dampens construction and
iron oxide demand.
Other end markets
While construction will always be the largest end-market for
iron oxide, there are other end markets, for example in the
colouring of plastics and rubbers - for which the largest
market is the automotive industry - as well as inks, paints and
coatings, again where automotive is a large end user.
The automotive industry, as with
the construction industry, tends to follow the trend of GDP,
but with one caveat.
The automotive industry is
less reliant on iron oxide, and the downturn impact in this
industry sector has been less problematic for iron oxide,
Spackman told IM.
As the industry begins to rise
again after the crisis, iron oxide demand will rise, but less
so than titanium dioxide pigment, which is used to make white
paint - the most popular car colour according to the 2012
DuPont Automotive Color Popularity report.
White is the most popular colour
with 23% of the market, follow by black with a 21% share and
with red in fifth place with an 8% market share. Yellow come
second last, with 1% of the market.
Both iron oxide and chromium oxide
can be used for black pigment, while iron oxide can be used for
red and yellow pigment.
The best way to see the how iron oxide pigment market could
fare moving forward is to look at the development of the
construction industry, which will be driven by China and the
US, compensating for a stagnant Europe.
Demand from the construction
industry is expected to grow above the average rate for iron
oxide pigments in the coming years, LANXESS told
Chinas housing push
Chinas new leadership is trying to counteract the
countrys construction industry decline. Chinas
National Development and Reform Commission has approved 60 new
projects, which will be coupled with large new infrastructure
projects being implemented by individual cities and could run
Li Keqiang, Chinas new
Premier, will be leading this housing push with his own focus
on the development of affordable housing, according to
Business Insider referencing Cheng Li for
The Washington Quarterly. The Ministry of Housing and
Urban-Rural Development has already focused on this policy,
CNBC reported, and is planning to build around 6m units of
affordable housing in 2013.
Construction expenditures in China
are expected to increase 8.8%/year in real terms through 2016,
according to a report from The Freedonia Institute.
The country will continue to
out-perform other major national construction markets. Ongoing
urbanisation and industrialisation, rebounding foreign
investment funding, rising personal income levels, and further
population and household growth will all work to drive
gains, the report said.
The Manufacturers Alliance for
Productivity and Innovation (MAPI) also expects that
Chinas growth momentum will pick up in the second half of
2012, underpinned by the acceleration in infrastructure
investment spending and social housing construction.
The underlying demand for housing
is likely to continue thanks to the high savings rates,
limited investment options and lack of a property sales tax,"
However, Schlag disagrees.
If you look at the main
construction materials - like steel and zinc and these
materials are very closely tracked - then you will see that
this [high growth] is not continuing into 2013, he
If we take the five-year
forecast period (...) it is not expected that these growth
rates will continue. We see growth continuing in automotive and
consumer goods and domestic kind of consumer good
consumption, he added.
Schlag anticipates that growth will
be far from its 7.5-8% target and more in the 3-4% range.
While the picture of Chinese growth
is being viewed as negative, actual growth figures of 3-4% will
still be impressive in comparison with the rest of the world.
The surge in the US is only expected to peak at 4%.
US bounces back
The key aspect of US construction is that, despite the
governments potential policies and cuts, the overall
picture remains one of growth. This may not be at a level that
compares with pre-2007, but one of strength nonetheless.
I dont necessarily
think that in 2013 we should expect a banner year for
construction spending, but it will continue to be a bit more
positive - a little muted in the first half of the year because
of sluggish economic growth and uncertainty - but we should
like to see a bit a pickup in 2013, sometime in the second half
of the year, Anika Khan, Wells Fargo director and senior
economist told IM.
Construction should not be judged
on month-to-month performance because of its volatility and the
figures are normally heavily revised, but more on its general
trend, which Khan believes is encouraging.
[It] is very positive and
continues to improve at a modest pace (É) [the US has]
finally dug itself out of the hole and is expecting only modest
growth, but it is growth nonetheless, she added.
that this growth might not be an indicator of
a long period of sustained growth, but rather a shorter-term
solution as housing prices recover and building activity
This means that growth could
readjust down in the future, which will hamper demand for iron
Europe stagnates while other areas grow
Unlike the US and China, which are in the midst of change, the
situation in Europe continues to be bogged down in the
political mire with numerous countries suffering economically
and some requiring large bailouts.
Given this situation, the
uncertainty that plagued 2012 is likely to continue into 2013
and, barring some drastic changes, beyond. Uncertainty will
limit capital spending on construction projects that use iron
oxide by governments, companies, and normal home owners.
Much of Europes iron oxide
production is used to supply external markets, so producers
within Europe are unlikely to too adversely affected.
Markets outside of the three
traditional mainstays of iron have also been showing promise,
LANXESS told IM.
While our traditional markets
are located in Europe and North America, in the recent years,
we have seen burgeoning growth in Latin America and Asia,
Supplying to a global customer-base
makes the company less vulnerable to regional economic
Iron oxide shows great promise on a
world scale as its largest end market, construction, is moving
forward in two of its three largest regions - China and the US.
China growth could slow, but will remain strong when compared
with other regions of the world, while the US growth will be
strong in the short run although this could slacken off in the
There have been several expansions in supply, which hope to
compensate for these increases in demand, both in China by
LANXESS and Cathay Industries and in the US by Rockwood
Pigments. This sets the iron oxide pigment industry up to take
strong steps forward after the weakness seen during the
Iron Oxide - the versatile pigment
While 98% of iron oxides in nature are destined to become iron
ore, a small proportion are used as iron oxide pigments. Iron
oxide pigments are an extremely important part of the coloured
pigments industry - producing a variety of colours ranging from
red to black - and their use dates back to prehistoric cave
paintings including the Chauvet cave which dates to roughly
30,000 years ago.
In the modern world, iron oxide
pigments still have an important use producing a variety of
colours in paint and concrete and are produced in two forms,
natural and synthetic.
Natural iron oxide
Natural iron oxide is the only mineral that is suitable to be
used as a pigment after being pulverised to a pigment size
(typically less than 1ųm and excludes pyrites and
siderites) but only makes up roughly 10% of total supply with
the rest being made up by synthetic iron oxide.
Natural iron oxide is usually
derived from haematite and magnetite but can also be derived
from ochre, umber, sienna, goethite, siderite, and
It can produce a variety of colours
(see table) and this range can be extended by blending
in iron oxide from other ores. Adding in haematite can add more
red to a pigment while limonite adds more yellow and magnetite
adds more brown/black.
Synthetic iron oxide
Synthetic iron oxide is usually manufactured chemically using
different processes depending on the colour needed.
Thermal decomposition of iron salts
is used to produce reds while direct precipitation of iron
salts (usually with oxidation) can produce yellows, reds,
browns and blacks and reduction of organic compounds by iron
for a variety of colours.
Compared natural iron oxide pigments, synthetic pigments
tend to have superior uniformity, colour, purity, greater
tinting strength and tight control over consistency. Another
advantage of the synthetic process is that it opens up a huge
range of potential products to a wide variety of markets.