The titanium dioxide
(TiO2) feedstock industry underwent a significant
period of upheaval during 2012: prices rose, prices fell and
production was cut by some of the largest producers.
As 2013 began, a new vision of the
industry emerged - one of a tortoise withdrawn into its shell.
With weak end-market demand and fallen prices, some producers
slashed output and battened down the hatches.
Now, as 2013 reaches its halfway
mark, the situation is undoubtedly more positive as decent GDP
growth figures will encourage end-markets. The destocking trend
that defined the second half of 2012 appears to be drawing to a
close. Production will remain low, but demand appears to be
returning and a hint of optimism comes with it.
After a turbulent 12 months for
TiO2 feedstock prices, supply of mineral sands has
seen major curtailments by leading producers. Not only have
some of the expansion programmes that were underway been
halted, existing supply has been slashed.
Rio Tinto is the worlds
leading producer of TiO2 feedstocks from its
facilities at Richards Bay Minerals (RBM) in South Africa and
Fer et Titane (RTFT) in Canada.
As demand from pigment producers
waned in 2012, Rio Tinto put its zircon and rutile processing
operations at RBM on care and maintenance. In addition, the
upgraded slag (UGS) production facility, which produces
chloride-grade slag at RTFT, was taken offline.
The companys TiO4
expansion plan was also halted because of market conditions. It
was undertaking a prefeasibility study for a $4bn feedstock
production plant in Bacancour, Quebec, Canada, which was put on
hold. A prefeasibility study for an additional mine in
Madagascar was also cancelled.
In Becancour, RTIT has
reviewed the economic viability of the TIO4 Program and decided
to stop prefeasibility studies there in January 2013, the
company told IM.
The market situation has been
difficult and these restrictions should keep costs low, while
helping to support prices as demand increases.
Iluka Resources Ltd, the
worlds second-largest producer, has also taken drastic
action, cutting back its operating capacity to 30-40% for the
year. Rutile and synthetic rutile production in 2013 is
predicted to only be around 200,000 tonnes - 40% of
In April 2013, the company idled
its Eneabba mining operations in Western Australia, which
produces ilmenite, zircon and rutile. The companys second
synthetic rutile kiln in Capel, Western Australia, has been
idled and the Tutunup South mine (ilmenite production to feed
the kilns) is also being idled. In addition, output at the
companys mineral separation plants have been
We expect setting production
at such a low level will allow finished product inventory to be
drawn down progressively as demand recovers, David Robb,
managing director, said.
While rutile and the other
higher-grade feedstocks have seen severe supply curtailments,
ilmenite supply has remained relatively secure.
Major producers Kenmare and IRC Ltd
have both continued production at the same level as
In Q1 2013, Kenmare produced
137,500 tonnes ilmenite up from 123,600 tonnes in Q4 2012.
Production increased partly due to the dredge pond coming
towards the end of its transition from the low-lying Namalope
Flats zone onto a raised dunal plateau, where it will mine in
The Irish company has, in addition,
just completed an expansion of its production facilities, for
which the majority of the output was already contracted for,
Michael Carvill, managing director, told
IRC Ltd, producing ilmenite in the
Far East, was another company that did not reduce production
and actually expanded it by half to 40,093 tonnes ilmenite for
Q1 2013. The company continues to aim for annual production of
Sales increased at IRC, but around
8,000 tonnes ilmenite remain unsold.
Despite the slow sales, ilmenite
supply has remained secure, and will most likely continue to do
Ilmenite is valuable in the sense
that it is the lowest grade and cheapest feedstock, so there is
always a solid demand base, as Carvill explained:
There is a certain
equivalency of value in the use of ilmenite because of its
nature as a feedstock of titanium slag, and since chloride slag
has remained so robust in terms of pricing, that has given a
certain strength to the ilmenite, he said.
An end in
Many TiO2 pigment
producers are operating their plants at low capacity rates,
with some even operating as low as 60-70% of total capacity. As
much of this pigment is still to be introduced into the market,
there is a large amount of potential demand for feedstocks
waiting in the wings, leading many market participants to
wonder how long these curtailments will last.
The short answer is they are
unlikely to end this quarter and - given the amount of time it
takes to bring a plant back online - are unlikely to end
The situation at RTIT plants
all over the world will be reassessed on a regular basis taking
into account market conditions, Rio Tinto told
IM, adding that it is beginning to see
improvement in zircon demand, particularly in Asia.
But the company had no specific
plans to return to full production levels.
Iluka Resources echoed this:
[We have] the ability to restore higher levels of
production relatively rapidly, for example, mineral separation
plants can be moved back to higher utilisation rates in a short
period of time, with sufficient concentrate available to be
processed, it told IM.
It, too, has no specific plans to
return to a higher level of production.
Eastern Europe rises
While major companies are cutting
back on their supply of rutile and synthetic rutile, feedstock
production in eastern Europe is taking a different route - with
Group DF at the head.
Group DF, led by Dmitry Firtash, is
made up of sulphate-route TiO2 pigment producer
CRIMEA Titan, as well as the feedstock mining operations at
Volnogorsk and Irshansk in the Ukraine.
The group is looking to expand and
plans to invest around $2.5bn by 2017. Much of this will be in
a new 120,000 tpa sulphate-route TiO2 pigment plant,
but Group DF also plans to construct a titanium slag plant,
with the capacity of 150,000 tpa, and a titanium sponge plant,
with the capacity of 40,000 tpa.
On top of this, the company is
updating the mining machinery at Volnogorsk at a cost of $14.3m
to improve the efficiency of ore mining, and reduce maintenance
Significant new titanium slag
capacity will also be coming online as Norwegian producer TiZir
begins its ramp-up.
The current capacity at the
TiZirs Tyssedal slag plant is 200,000 tpa titanium slag
and 110,000 tpa high-purity pig iron, but it will be upgrading
its nameplate capacity to 220,000 tpa by 2014 and 400,000+ tpa
by 2016. To do so it would have to reduce actual production in
the short run to 140,000-150,000 tonnes in 2014, but increase
to 200,000-220,000 tonnes again in 2015, reaching full capacity
The company claims this would make
it the second-largest producer worldwide below Rio Tinto, which
produces 2.25bn tpa slag, and above Tronox and the accumulated
Chinese producers, which produce 370,000 tpa slag and 200,000
tpa slag respectively.
So, supply is likely to remain
limited for higher-grade feedstocks, such as rutile and
synthetic rutile, but the increases in capacity for slag, in
addition to its comparative strength, will feed through and
help maintain demand the ilmenite used to create it. Given that
there have been no real supply curtailments by ilmenite miners,
supply of both ilmenite and titanium slag - both chloride and
sulphate - should remain relatively secure for the
Market demand for TiO2
feedstocks has been, at the very least, suboptimal and, at the
very worst, dire.
Unlike other minerals, TiO
2 feedstocks are almost exclusively used to make
TiO2 pigments, apart from small quantity uses, such
as rutile for welding. As such, the fortunes of the feedstock
industry are inextricably linked to the fortunes of the pigment
After the price boom of 2011 and
early 2012, pigment prices fell sharply in the second half of
2012. This was driven by a severe drop in demand from
end-users, including paint producers, plastics producers and
As prices had risen, and looked
like they would continue, end-users began panic-buying
TiO2 pigments and expanding their inventories, which
in turn encouraged higher prices, until the situation reached
critical mass and demand practically vanished.
As demand exited the pigment
industry, producers took preventative measures and reduced the
capacity of their plants - Rockwood even slashed output to 60%
of total capacity during 2012.
This filtered down to the mineral
Sales volumes in 2012 were
also markedly weaker than in the global financial crisis trough
of 2009; a year when 758,000 tonnes of zircon, rutile and
synthetic rutile was sold, David Robb, Iluka Resources
The TiO2 feedstock
industry has traditionally been priced on long-term legacy
contracts and prices have, for years, lingered around a level
that producers felt was n ot sufficiently
profitable to maintain the industry.
During 2011 and 2012, feedstock
producers began to move more towards short-term contracts with
Iluka was able to price its
rutile and synthetic rutile products free of old style,
'legacy' contract constraints, Robb said.
Some other major producers
operated in 2012 under such contracts which meant that at least
some of their volume was priced at an appreciably lower level
than what might have been achieved given prevailing market
conditions, he added.
Number three producer Tronox was
another company that has borne a significant cost burden from
having to continue to sell on these contracts at below market
However, this situation is
Most of these legacy
under-market priced contracts have, or are, expired so our
feedstock costs are moving in the opposite direction.
Theyre significantly declining as a result of our
acquisition [of feedstock mines], Tom Casey, Tronox CEO,
We had 140,000 tonnes
titanium slag that we sold last year pursuant to an
under-market price contract that we entered into [previously]
(É) 40,000 tonnes of that production is no longer under
contract. the 100,000-tonne balance of that contract expires at
the end of 2013, he added.
With these contracts ending, many
pigment producers stocked up their inventories - much as paint
producers had done further down the supply chain - so when
prices reached a peak they could simply run down their
inventories rather than buying new stock.
This, combined with the already
lower demand from pigment producers because of the end-user
destocking, has led to the extremely muted demand that has
prompted the curtailments.
No help from zircon
Zircon has typically proved an
advantage to titanium feedstock producers. It is normally found
in the same marine, coastal and palaeochannel sediments formed
during the Tertiary age, 65m to 1.8m years ago.
Here the similarities end as zircon
is used in entirely different end markets and has a very
different supply chain to TiO2 feedstocks.
Zircons main end-market is as
an opacifier in ceramic tiles, as well as in refractories and
Its main geographic end market is
China and, with Chinas housing boom, it has been very
profitable in the past few years.
Often, when the TiO2
feedstock industry reached a low point in its cycle, profits
from the zircon industry would help to sustain producers while
they waited for the feedstock industry to improve. This time,
however, demand for zircon has collapsed due to a number of
Zircon prices have dropped to
around $1,200-$1,400/tonne from $2,500/tonne in 2012. This has
impacted producers profits severely and, although an
uptick is expected, many end users are operating on a
With the drastic falls that
TiO2 feedstock prices saw in 2011 and 2012,
producers and suppliers have been behaving very cautiously.
Prices for rutile have fallen to
around $1,100-$1,300/tonne, a level that many producers
consider unsustainable. As demand for pigment rises, prices
should also begin to pick up.
At their height in early 2012,
rutile prices reached almost $2,400/tonne, which many consumers
considered unsustainable. Prices for TiO2 pigment
are around $3,000-3,400/tonne and if rutile prices were to rise
to those levels again, they would be a huge percentage of the
total cost of pigment.
While rises are expected, prices
are unlikely to get anywhere near their previous highs.
Indications are that prices
have stabilised, which if sustained, provides essential
confidence to underpin volume recovery and represents a
pre-condition for potential price increases, Robb
Ilmenite prices have also been
Ilmenite has experienced a
price decline. I think that the price decline is not as extreme
as rutile or synthetic rutile because it hadnt seen that
level of price appreciation that they had, Carvill told
IRC Ltd, a far East producer of
ilmenite has recorded prices dropping as low as $263/tonne
during 2012 but picking up slightly to $274/tonne in 2013.
However, prices at this level could
still be creating difficulty for producers.
It seems to me that, at this
level, ilmenite producers will generally lose money,
We dont believe that
ilmenite prices can sustain themselves at these present levels
- its not enough. I think that they are going to have to
return to higher levels, he added.
The market outlook for
TiO2 feedstocks is, again, very closely linked to
that for TiO2 pigment.
The normal rule-of-thumb for the
pigment industry is that it follows the cycle of GDP, due
mainly to its major end markets of paint in housing and
automotive being very GDP-sensitive.
The GDP outlook is, on the whole,
positive and producers of TiO2 pigment (and
therefore also producers of TiO2 feedstocks) are
looking forward to an upswing in demand.
Consumption of titanium
pigment, which is the ultimate market, is closely correlated
with world GDP growth and the world is growing, Carvill
China is often highlighted as the
most important market for a wide variety of industrial minerals
and TiO2 pigment and feedstocks are no exception.
While it is true that China is unlikely to see the rapid growth
that characterised the past decade, it is still predicted to
have much higher growth than either the US or Europe.
Chinas GDP growth has
declined since H2 2010 from 9.8% to roughly 6.9%, according to
the IMFs World Economic Outlook. Although it will remain
under the 8%-mark during H1 2013, it will then pick up slightly
and hover around 8% through to the end of 2014.
Data from the Organisation for
Economic Co-operation and Development (OECD) concurs,
predicting Chinas GDP growth to pick up from the 6.6% in
Q1 2013 to 8.3% in Q2 2013 and then continue at an average of
8.3% through to the end of 2014.
This growth may differ from its
expansions of old, but is nevertheless substantial when
compared with figures posted by the other major
US GDP growth has averaged around
2.2%, according to both the IMF and the OECD, but has shown
signs of a gradual recovery. It is predicted to continue to
strengthen and stay consistently above 3% during 2014.
European woes also look set to end
in 2013. The Euro area has experienced very weak growth through
2011 and 2012; IMF data shows figures fluctuating between 1%
growth and 2% contraction. The IMF and the OECD both predict
that this will end.
The OECD believes that GDP growth
will be negligible in Q2 2013 and then rise steadily to 1.2% in
Q1 2014 and 1.8% by then end of 2014.
The IMFs predictions are also
positive, but with slightly weaker numbers - predicting that
GDP will reach 1% by the beginning of 2014 and oscillate around
that level throughout the year.
These three regions account for the
majority of demand for TiO2 pigments and are all
showing economic improvement, which will filter down to the
TiO2 feedstock industry.
As this demand returns, the
destocking of pigment inventories by paint producers and
feedstock inventories by pigment producers will be completed
and this will boost demand right through the supply chain.
[Demand] is returning to the
pigment industry, and if it returns to the pigment industry
then it will inevitably return to the feedstock industry,
I think it is going to happen
this year, he added.
Rio Tinto agreed.
Given the long-term
fundamentals for our business remain strong, coupled with
evidence of TiO2 pigment inventories being worked
through, we expect demand to recover, the company told
Other sources have indicated to
IM that volumes have already been showing
improvement in emerging markets and there has been increased
interest from more established markets, both for
TiO2 feedstocks and for zircon.
This stronger GDP and growing
interest bodes well for the industry. There should be increased
demand for all TiO2 feedstocks and the major
producers retain the capacity to increase production when
necessary, meaning supply shortages are unlikely.
All in all, the industry is looking to a brighter future and
the tortoise can begin to emerge from its shell.