A TiO2 pigment plant for Vietnam

Published: Monday, 22 July 2013

Vietnam has been an expanding economy ever since it began to move away from the rigidities of a centrally-planned system, SonMinerals consultant, Martin Lynch, explores the state of the country’s TiO2 feedstock industry and whether this is the opportune moment for a TiO2 pigment plant.

Centrally-planned economies were the emblem of communist countries in the 1970s and 1980s. But, in more modern times, they have been defined by astronomical economic growth under a more market-based system.

Vietnam is no exception and its economy has expanded rapidly making it a core component of burgeoning South-East Asian demand.

Since 1986, Vietnam has been moving away from its centrally-planned system through a variety of political and economic reforms. This has propelled the country from one of the world’s poorest nations to one of lower middle-income status.

The country joined the World Trade Organization in 2007 and is now involved in negotiations towards several important free-trade agreements, including the Trans-Pacific Partnership (TPP) and a bilateral free-trade agreement with the EU.

Vietnam has averaged GDP growth of between 7-8.5% and, according to a PwC report in 2011, The World in 2050, the South-East Asian nation will average 8.8% real growth in GDP moving towards 2050. According to the report, this was highest off all countries surveyed - including China (5.9%), India (8.1%) and the US (2.4%).

Given that the growth in demand for titanium dioxide (TiO2) pigment tends to follow the trend of GDP growth, this shows the potential that the Vietnamese market has as a consumer of TiO2.

At the recent TiO2 Pigment Conference in Barcelona, SonMinerals’ principal consultant in Europe, Khanh Le, made a presentation on the prospects for a TiO2 pigment manufacturing plant in Vietnam. He pointed out that domestic demand for pigment is growing, much as for GDP, and the domestic production of ilmenite is also growing, adding that the national government remains determined to achieve downstream processing of its natural resources. The combination of these suggests that a pigment plant cannot be too far away.

While a pigment plant could be just over the horizon, there is certainly no such plant in sight - nor even even any announcements of an intention to build one. Many speculators have asked why it is taking so long, given that the prospect of a Vietnamese pigment plant was first examined in earnest as far back as 2004, and that Vietnam, like China, is a good location for low cost manufacturing.

To start considering this question, it will be helpful to begin by painting a picture of the development of the mineral sands sector in Vietnam.

Mineral sands in Vietnam

Vietnam has a long coastline and mineral sands mining operations can be found from Nghe An province in the north to Binh Thuan in the south - a distance of some 2,000km.

The oldest commercial operations were started in 1990, and the pace of development increased when, in the mid-1990s, the Vietnamese government established two foreign joint ventures (JVs) to develop some of the richer orebodies.

The first of these was established in 1993 by the Australian miner, Westralian Sands, and was located on an extensive and - given Vietnam’s deposits tend to have low concentrations of higher grade feedstocks - rutile- and zircon-rich orebody in Ha Tinh province. This was called the Austinh JV.

The second was the Bimal JV established in 1995 in Binh Dinh province with a Malaysian mining group. Famously - at least among veterans of the Australian mineral sands sector - that the Austinh JV collapsed a year later, with Westralian losing its entire investment. Less well known is the fact that the Bimal JV prospered for many years, and has only recently closed due to the exhaustion of its orebodies.

Activity in mineral sands mining steadily increased throughout the 1990s and into the next decade. By 2005, Vietnam was producing 400,000 tpa ilmenite and had become a supplier of importance to the three regional consumers: China, Japan and Korea.

Six years later, production had jumped to nearly 1m tpa, spurred on by the remarkable price hikes for both ilmenite and zircon, which were seen in 2010 and 2011. The growth was such that, by 2011, Vietnam had cemented its position as the largest foreign supplier of ilmenite to the burgeoning Chinese slag and pigment and become a major presence in global mineral sands.

Two years on, this continues to be the case. Vietnam produces about 7% of the global supply of TiO2 feedstock, and nearly all of it is shipped to China.

A fragmented industry

The mineral sands industry which has developed in Vietnam is the product of the particular circumstances of the country.

The first notable feature of the industry is how many individual companies there are actively involved in mineral sands mining. At the last count there were more than sixty, and at least forty of these were producing several thousand tonnes of ilmenite per year.

The top three producers control no more than 25% of the national production. This can be compared to Australia and South Africa where the top three control well over 90%. Most of the Vietnamese producers, when looked at from a global perspective, are tiny.

Globally, the largest producer is Rio Tinto, which accounts for somewhere near 25% of the world’s output. Other major producers are Iluka and Tronox, controlling about 20% between them. In contrast the largest producer in Vietnam is responsible for only 0.8% of global production, and second largest produces only 0.4%.

This industry fragmentation is partly due to the relative youth of the industry. The process of company consolidation is part of the maturing process in any industry sector and in Vietnamese mineral sands it has not yet had time to take effect. But the main reason for the fragmentation is the way in which mineral leases are granted.

There are two types of leases in Vietnam: industrial and provincial. An industrial lease is granted by the national government and is typically for a term of between 5-30 years. Given the length of the lease, the size of resource granted tends to be fairly large. In some cases, a company is granted an industrial lease over an entire province. This is the case, in Ha Tinh province, where Mitraco, the successor to the ill-fated Austinh JV, is the sole licensed mineral sands miner. A similar set-up is in place in Hue province, where Humexco is the only producer.

Industrial leases, however, are the exception. Much more common is the provincial lease. This is granted by the provincial government and is usually a short-term arrangement, because the national government insists on having control over large-scale, long-term mineral developments. A typical provincial lease has a term of 2-3 years, after which it must be renewed. As would be expected, the size of the resource is often, but not always, fairly small.

Some provincial governments are much more open-handed with these leases than others. In Binh Dinh province, provincial leases are relatively easy to obtain. It is not a coincidence that this province accounts for between 50-60% of the national ilmenite production.

It is also no coincidence that over half of all Vietnam’s mineral sands miners are operating in Binh Dinh. In Binh Thuan province, on the other hand, there are far more potential resources but only a handful of companies, and low production. The main reason is that the Binh Thuan provincial government is distrustful of the impact of mining on its beaches and farmland and mining licences are hard to obtain.

Low cost production

A second feature of the Vietnamese mineral sands industry is the very low capital and operating costs of the operations and it really cannot be any other way. This is because the heavy mineral grades in the (commercially viable) mineral sands mining operations lie between 0.5% and 1.5%.

As those familiar with the global mineral sands industry will know, 1.5% is below the cut-off grade in virtually every mining operation outside of Vietnam and, in fact, in Vietnam the in-situ grade situation is actually worse than that.

To explain this: in Vietnam, there are basically two types of mineral sands assemblage. The first is ilmenite-rich, with the more valuable rutile and zircon making up perhaps 3% by weight of the entire heavy mineral suite. The second is ruitle-zircon (RZ) rich, with the RZ between 12% and 20%.

The ilmenite-rich orebodies are found mostly in Binh Dinh. The RZ-rich orebodies are found in the Ha Tinh-Hue orebodies to the north of Binh Dinh, and in the Binh Thuan-Ninh Thuan orebodies to the south. It is normally only in the ilmenite-rich orebodies that the heavy mineral grades reach as high as 1.5%. The average heavy mineral grade for an RZ-rich orebody is about 0.8%.

To put these grades into perspective, in its 2012 annual report, Iluka Resources states its average grades to be 4.9% heavy mineral with a RZ content of 17%. Compare this to Vietnam where miners with RZ of 17% sometimes have to deal with just 0.5% heavy mineral.

If capital and production costs are anywhere near the level of “Western” mining operations, these mines would not be considered economically viable. Compounding this, is the fact that very often the lease only has two years guaranteed. The result is that mineral sands mines in Vietnam must be built at very low cost, and run on a shoe-string.

The miners have achieved this by using:

- Fleets of floating “spiral ships” (see image, p44).

- Low cost dry mill separation equipment, perhaps 30% of the cost of Western equipment, with the same nominal duty.

- Workers who are paid about $1/hour to monitor and maintain the equipment.

A mineral sands operation capable of producing and processing 40,000 tpa heavy mineral concentrate can be built for less than $2m. Even this cost can be substantially reduced if the owners opt to use one of the contracting companies, which supply and operate the spiral ship fleets.

Technical performance lags behind

A third feature of the Vietnamese mineral sands sector, is that there are many areas in which mining and metallurgical improvements can be achieved. This will not come as a surprise, as there is inevitably a compromise to be made when using low-cost equipment.

Technical performance is often one factor which loses out. An example is the recovery of heavy mineral on the spiral ships. In the various mines which SonMinerals has visited and taken measurements, a 50% recovery of valuable mineral is typical. To this can be added the likelihood that the spiral ships may leave 20% or more of the in-situ mineral still lying at the bottom the pond.

In the dry mill, a similar situation of exists. The separation efficiency of the machines is such that very often the finished minerals are not premium quality.

This technical underperformance is not all due to the equipment being used. It is fair to say that there is not much of a focus on such matters as spiral recovery and separation efficiency.

Many of the mine owners are wealthy property developers who have decided to invest their money into mineral sands rather than risk it in the now deflated property market. These businessman often lack the background and experience to drive improvements in technical performance in the mine and plant.

They have been able to overlook this because they are in the fortunate position of being very close to the world’s largest and most dynamic consumer of TiO2 feedstocks. As a result, the path to market has been easy. A Chinese trader will appear, offering cash up-front and not worrying too much about the fact that the mineral products usually need further cleaning before use. Transport costs are small and in the last few years (until mid-2012) ilmenite, zircon and rutile prices continued to rise.

In such an environment, there has been no need to worry about the finer of points of technical performance.

As for the downstream processing of ilmenite, the mine owner tends to eschew this consideration. For one thing, it requires further investment. Worse still, the Chinese traders, typically, do not want the more refined product.

On the contrary, the traders happier to buy the unrefined product and would buy it directly from the spiral ships if it was allowed. There was, and is, plenty of spare dry mill and slag plant capacity in China.

Moving from mines to plants

Such has been the evolution of the Vietnamese mineral sands industry. Along the way, a handful of slag plants have been built. Of the six in Vietnam, five of them could be described as being the minimum possible size, built mainly to comply with government policy (see The Master Plan). The largest slag plant in Vietnam has a nominal capacity of 25,000 tpa slag with a TiO2 content of 85%.

The slowness of building slag plants provides some perspective on the original question: why is it taking so long to build a TiO2 pigment plant in Vietnam?

To begin to answer this, it can be seen from the attitudes of mineral sands miners in Vietnam that, even if they had the financial capacity, there is no appetite to take on such a project.

The business of the miners is to sell mineral products, upgraded if need be. Their customers are not looking to buy TiO2 pigment and, indeed, their customers are really not looking for upgraded mineral products of any kind - they want raw material.

As for a non-mining company venturing to build a Vietnam-based TiO2 pigment plant, there is no real interest in this either. The reason is that there is as yet no clear market opportunity for such a plant.

To examine this a little further, consider the fact that the Vietnamese pigment would have to be sold to a combination of domestic and foreign consumers. After all, a reasonable minimum size is 40,000 tpa and for Vietnam the total imported pigment peaked at 43,000 tonnes in 2011. Last year, this total fell to 34,000 tonnes in the wake of a sharp contraction in the property market. There are direct imports of paint but this is thought not to be a large share of the market.

This current domestic market of 35-45,000 tonnes of pigment is certainly not all up for grabs. One need only look at how difficult it is for the many domestic zircon millers to sell their product inside Vietnam. Foreign suppliers of TiO2 pigment have established a good foothold and a loyal clientele, and they will be difficult to dislodge.

On the positive side, the domestic consumption of paint is growing rapidly, and, in response, pigment imports increased on average 16% year-on-year between 2001 and 2011. If this keeps up, TiO2 pigment imports may rise to as much as 60,000 tonnes by 2016. A Vietnam-based pigment plant may be able to capture perhaps one third of this but even that would be hard won.

The export market would be no easier. Indeed, it would be a bold move for a new operator to build a completely new pigment plant requiring the sale of half of its product on the export market.

Despite these difficulties, it remains highly likely that a pigment plant will be built in Vietnam by 2020. Domestic demand is growing quickly, and Vietnam is a low-cost production base, even compared to China. These factors will provide impetus, and an equally important driver will be the ilmenite export tax (see The Master Plan). The builder of Vietnam’s first pigment plant will most likely be either a large Vietnamese ilmenite producer or an existing foreign pigment producer looking for a lower-cost base of production or even a combination of the two.

The Master Plan for mineral sands

To the external observer, Vietnam has all the appearances of a thriving market economy. But it remains a one-party state and the national government still retains some of the central planning habits of the old style communist economies.

One manifestation of this is seen in the Master Plans which are published every five years or so for each industry sector. The Plans present the national government’s vision for the sector and establish targets and identify, in some detail, the range of issues which must be dealt with to achieve the targets. The Plans typically do not contain specifics of government support and taxation programs which support the targets - such announcements are made separately.

The first Master Plan for the titanium industries was released in 2007 and it made clear that the national government wanted downstream processing of its titanium and zircon resources. By 2010, which was three years into the future when the plan was issued, it was expected that Vietnam would be processing almost all of its ilmenite through to slag.

To assist this process, a 20% export tax was applied to all ilmenite exports. When a year later it was obvious that the tax was not having the desired effect, a full export ban was applied - that failed too. It was too easy for shipments to slip through the net and, in any case, the resolve of the government was not strong enough for such a tough measure.

But the determination to achieve downstream processing has not gone away. In 2010 a second export ban was imposed - it too failed. Then in mid-2012, export ban number three was imposed. This was accompanied by a 30% export tax on ilmenite. In June this year, the tax was raised to 40%. In contrast, the export tax on processed minerals - milled zircon and TiO2 slag - is only 10%.

The 2012 Master Plan, a draft of which has recently been released for discussion, reinforces this determination. Unfortunately the targets are somewhat optimistic. The Plan sets a slag production target of 600,000-800,000 tonnes in 2015. Production in 2012 was 35,000 tonnes. Judging from this, it would seem that the expectation is for a massive programme of slag plant construction, beginning this year. It has not yet started and it is very hard to imagine this target being achieved. This is especially so now that the export ban has been effectively neutered through the widespread granting of export quotas.

The plan covers TiO2 pigment as well and domestic demand is targeted to be 90,000 tonnes in 2015 - a bullish expectation when the 2012 demand was less than 40,000 tonnes. Perhaps surprisingly then, amidst such aggressive targets, the Master Plan accepts that there will be no domestic pigment production by 2015.

In the period 2015 to 2020, however, there is an expectation of a major pigment plant building programme. Domestic production is targeted to be 240,000 tonnes in 2020.