Whiter than white: TiO2 in 2014

A year ago IM ran an article prior to the 6^th Annual TiO₂ Conference in Hong Kong stating that TiO₂ producers were convinced that the 2012 market softness was “only temporary”.

We now know that the weakness the market experienced was not, as stated, temporary, but rather it stretched into 2013 and continues. There is, as ever, some indication that demand will return to the market, but not all producers are convinced.

We know that prices for TiO₂ slipped by between 10 and 15% over 2013 as the European recession worsened and US growth stalled.

And we also know that China’s GDP growth has been slower than expected, and that manufacturing also slumped through 2013 - but both have since picked up.

We know that feedstock producers have accepted lower average prices for their material and we have also seen the divestment of TiO₂ business - with Rockwood selling its TiO₂ assets to Huntsman Corp. in September this year . Similarly, DuPont has gone on the record stating it is ready to sell or spin off its Performance Chemicals business as part of its transformation to a “higher growth, less cyclical company”. DuPont’s Performance Chemical products include TiO₂ technologies, fluorochemicals and fluoropolymers, and sulphuric acid.

For new producers, this market softness depends on where developers sit with their projects. Those with projects coming online now, such as Base Resources, which has already settled contracts with buyers, may be in a better position than those that used more aggressive cost of production models, Base CEO, Tim Carstens, told IM.

“If you were trying to bring a project on now I think you would struggle to get financing,” Carstens said.

The essentials for a project succeeding, Artikol’s Reg Adams told IM, are “having a good quality product (ore, slag or synrutile), good infrastructure, tranquil political conditions, assured finance and good strategic management”.

Outlook

According to feedstock producers, 2014 does look better than last year. Of course, it is in their interests to say that the market will improve, but some have reported an increase in demand for products in the year ahead.

“Pre-conditions for a recovery in pigment, and in turn high grade feedstock demand, are becoming evident,” Iluka informed the market in its Q3 2013 production update (see p27), while Sierra Rutile pointed to increasing pigment plant capacity utilisation rates.

This, it said, “in combination with reports of finished TiO₂ pigment inventory reaching manageable levels throughout the supply chain, means that any increase in end-user TiO₂ consumption will directly translate into feedstock demand”.

Kenmare Resources, meanwhile, told the market that it had seen an improvement in demand in the last weeks of September, adding “with an improving demand outlook for pigment and an anticipated gradual ramp up in pigment plant operating rates as inventories reduce, a more normal feedstock buying pattern is expected to emerge in 2014, which is expected to support stronger customer offtake”.

Others also seem supportive of a recovery in markets. Jack Blumenfrucht, CEO of Fairmont International Inc., said in October, that there were “signs the TiO₂ market may rebound”.

Firstly, Blumenfrucht pointed to the three successive price increases that have been implemented by the top TiO₂ producers this year, which he said “have finally succeeded in stabilising TiO₂ prices”.

Also, with the US crisis temporarily resolved, China’s economy expanding again and some optimism expressed by European and Asian leaders and industrialists; “it would appear TiO₂ and titanium feedstock prices are ready to move upwards,” Blumenfruct said.

However, he adds - this all depends on the orders for 2014, which will be placed in the next few months.

DuPont, the world leader in TiO₂, said in its Q3 2013 results that it believes that its TiO₂ sales would improve in Q4 2013, adding that it expected TiO₂ industry fundamentals would improve. Volumes, it said, would increase. Despite this, it is “moving with a sense of urgency” to divest its TiO₂ sector, Ellen Kullen, CEO, said.

As IM went to press DuPont announced that its board of directors had authorised management to execute a full separation of its Performance Chemicals segment, which includes the TiO₂, chemicals andfluoroproducts businesses. DuPont intends to execute the separation through a tax-free spin-off to shareholders, subject to customary closing conditions.

Upon completion of the separation in about 18 months, 100% of the new public entity will be owned by DuPont shareholders.

Market segments

According to a presentation by Adams made this year during a TiO₂ conference in Melbourne, Australia, paint markets consumption of TiO₂ is expected to increase by 3.6% pa to 2020. Driving growth is the fact there are no technical substitutes for paint in sectors expected to grow.

“Paint demand growth will continue to be at roughly the same rate as GDP. Or maybe slightly above, to cater for the fact that per capita paint usage for building interiors, cars, etc. tends to row slightly faster than per capita GDP consumption in emerging/developing economies,” Adams said.

In plastics, consumption of TiO₂ is expected to grow by 4.6%, driven by plastic’s ability to displace other materials and a bullish world plastics demand growth picture, he added, while in paper, a surge in demand for decorative laminate means a surge in TiO₂ consumption in this market. This market is expected to grow 5% by 2020.

“In the paper industry, the major end-use sector is dŽcor paper [the base stock substrate for decorative laminates],” Adams explained to IM.

“Prior to the 1990s, much of the TiO₂ demand for papermakers was coming from North American papermakers using TiO₂ in paper-coating formulations. When alkaline technology took over from acid technology in papermaking, calcium carbonate (GCC and PCC) displaced TiO₂. This caused a long-term decline in TiO₂ consumption for paper throughout the 1990s and into the first half of the 2000s. Decorative laminate (especially with wood-grained or marble-type appearance for floors, wall panels, worktops, etc.) has become increasingly popular since the mid-2000s, especially in Asia and Europe,” he added.

Enter the dragon

It is undeniable that any project will be looking at the Chinese story (see pp12-13) as an indication of where the market is going. “China’s TiO₂ consumption is forecast to nearly double from 1.48m tonnes in 2010 to 2.8m tonnes in 2020 [and] China’s forecast GDP growth is 7.5-8% pa over the same period,” Adams told IM.

This, he added “is admittedly slower than the double-digit percentage rates of the previous decade, but still faster than most other markets.”

Of course TiO₂ pigment markets are linked to both construction and to consumer goods. So the rising standards of living and construction investment in China will be major influences pushing up TiO₂ demand.

China’s economy expanded 7.8% year-on-year in Q3 2013, an acceleration of 0.2% compared to Q2 when it grew by 7.5%, data released in October showed.

The figures suggest a revival in China’s economic growth from the slowdown observed in H1 2013, with a consequent optimism in foreign investors and exporters, which raw materials producers hope will extend to the mining sector.

The Chinese government implemented several policies to head off a looming property bubble and slow the country’s residential sector in 2011-12, which led to a complete slowdown in construction, and therefore TiO₂.

Now, however, growth is returning to the market. The growth is the result of the government’s recent economic reforms, which include a looser monetary policy and investments in infrastructure, aimed at stimulating demand in the domestic market.

For TiO₂ markets, this means that an uptick in demand could well be expected in 2014 Ñ specifically from Chinese markets Ñ and potentially, China could even look to expand its own production.

This is, in fact already happening, Adams told IM.

“Yes, China’s own production of TiO₂ pigment will undoubtedly rise,” he said.

“There is already a substantial capacity surplus within China and it is likely to increase. China’s TiO₂ pigment capacity was 2m tpa at the end of 2011 and it is forecast to reach 3.5m tpa [by the end of] 2015. China became a net exporter of TiO₂ pigment in mid-2010 and its exportable surplus will grow over the next five to eight years,” he added.

Sulphate or chloride route

In the past, China has been known as a sulphate-route market. This is because it did not hold many, if any, chloride-route plants, as this technology was a closely-guarded western secret. 98% of Chinese TiO₂ uses sulphur route technology, which was abandoned in the late 1990s by the US. Out of the total Chinese TiO₂ production capacity of 1.8m tonnes, only 30,000 tonnes are derived from the chloride route, accounting for less than 2%, while in other parts of the world it’s 76% more.

In December 2012 US paint producer PPG Industries and China’s Henan Billions Chemicals Joint Stock Co. Ltd signed a technology licensing agreement, which enabled Henan Billions to use PPG’s technology to manufacture chloride-grade TiO₂ on a worldwide basis.

Prior to this, the buying and selling of chloride-route secrets was well documented in the courtrooms of the US, where DuPont was bringing espionage lawsuits forward against Chinese former workers (see IM April 2012 Former DuPont worker admits to providing DuPont trade secrets).

“So far, all the growth in Chinese pigment capacity has been from sulphate-route plants,” Adams told IM.

“Most of the additional 1.5m tpa (2011 to 2015) will be sulphate-route. But there are at least six Chinese chloride-route TiO₂ projects underway that will come to fruition between now and end-2015,” Adams added.

“By 2020, I think China’s total pigment capacity could be around 4-4.5m tpa, of which 15-20% might be chloride-route,” Adams said.

Projects in the pipeline

Argex

One of the most interesting stories of the year has to be that of Argex Titanium Inc., which has been working towards its NI 43-101 definitive feasibility study, which was completed in October this year.

The feasibility study, for its planned TiO₂ production facility in Salaberry-de-Valleyfield, Quebec, outlined the technical viability of opening a new TiO₂ production facility.

Based on a 25-year project life and 50,000 tpa production in 2015, Genivar assumes an approximate pigment price of $3,500/tonne for the project duration, along with a $454 of by-product credit per tonne of TiO₂ produced.

Study results also estimate that the project could garner a pre-tax investment rate of return of more than 40% and a pre-tax net present value of $954.4m.

The pre-tax payback period is expected to be 4.2 years, including an initial ramp up period, with production building to 50,000 tpa TiO₂ in 2015 before ramping up further to 100,000 tpa in 2017.

This, Bonnell argues, makes “a compelling case for the economic viability of the project”, a sentiment that has been echoed by investment analysts Byron Capital Markets.

Offtake agreements

Argex has already, potentially, signed agreements for 80% of its TiO₂ output.

In October, Canada’s Argex signed a letter of intent (LOI) to distribute up to 25,000 tpa of its TiO₂, with “one of the world’s largest chemical distribution companies”.

This is half of Argex’s initial industrial module.

Without naming the partner, Argex told the market that the agreement is to act as a guideline for the negotiation of a definitive marketing and offtake agreement between the parties.

This follows on from the signing of an offtake agreement with PPG industries for 15,000-17,000 of the 50,000 tpa capacity, in June.

Assuming the newly announced LOI moves forward, at least 80% of the material produced from Argex’s first operating line (40,000-42,000 tpa) is now earmarked for offtake.

“The successful completion of a definitive marketing and off take agreement of this scale means that now a significant majority of all available TiO₂ product from our initial industrial module will already be spoken for well in advance of actual production for many years to come,” Philippe Guillemaille, Argex’s head of sales and marketing, said.

Argex added that it could ramp up its capacity with more investment. The news prompted Byron Capital Market’s head of global research, Jon Hykawy, to send a note to potential investors maintaining its “buy” indication.

Ê“Argex continues to progress in a positive and systematic fashion. It is building a solid and diversified customer base through off-take agreements while continuing to clarify the economics of its process modules, as in the recently announced third-party feasibility study,” he added.

Base Resources

Base Resources, an Australian junior with a project in Kwale, Kenya, was the first TiO₂ producer to come online in 2013, with its project being ready for commissioning in November, slightly later than first planned.

The delays, CEO Tim Carsens told IM, were attributed to the slower-than-expected construction build.

The $300m project is expected to have an output of 340,000 tpa ilmenite, which is about 10% of the world’s total supply, 80,000 tpa rutile or 14% of total global output, and 25,000 tpa zircon.

It is linked by road to a major highway that leads to the port of Mombassa, where Base has its own port facility and 60,000 tonne capacity warehousing facility.

A major offtake agreement was signed in November 2011 with the world’s largest producer of TiO₂ pigment, DuPont, for 72% of its rutile production over a six-year period. In the last four years of the agreement DuPont has the right to reduce offtake volumes in line with its overall high-grade feedstock requirements.

The Kwale project is one that has been around for years and has somewhat of a chequered past under previous owners Tiomin.

New company, new mining law

However Base has had a different experience with the Kenyan government lawmakers. It has an “open and frank” relationship with the Kenyan government, Carstens said, which is yet to pass a new mining bill that it has been amending this year.

At the time of going to press the Bill still had not been passed, but discussions were taking place on 24 October to see whether it would pass.

Controversy centres around Clause 53: Government participation in mining license. , which states: “Where a mineral right is for mining or exploitation, the National Government shall acquire ten percent free carried interest in the rights and obligations of a mining operations in respect of which financial contribution shall not be paid by the National Government. A subsection to this says this “does not preclude the National Government from any other or further participation in mineral operations that may be agreed upon with the holder.”

If passed in the current form, the Ministry would still have the power to revise the afore mentioned stake, under clause 53(2) and clause 54, quoted below:

“The Cabinet Secretary may from time to time gazette different minimum levels of local equity participation for certain minerals”.

Expansions at Sierra Rutile?

Sierra Rutile defined an additional 39,300 tonnes rutile (at 3.49% grade) and 17,300 tonnes zircon (at 1.54% grade) in several tailings areas surrounding the mineral separation plant in its H1 results (see IM October 2013 issue).

“This provides Sierra Rutile with the opportunity to blend this product directly into the mineral separation plant, or via an existing 50 tph tailings upgrading facility,” the company said.

In Q2, Sierra Rutile overhauled its existing Lanti Dredge and brought its Lanti dry mining up to full capacity.

It is also considering further expansion into a second area, Gangama.

Image Resources

Australian TiO₂ feedstock explorer Image Resources, meanwhile, is further off than the aforementioned projects, but holds potential because of its strong economics and low-risk project, Peter Davies, managing director, told IM.

The project, located in North Perth, is expected to be online in 2015. Offtake and financing discussions are ongoing, Davies said.

NL has confirmed a JORC indicated and inferred resource of 2.1m tonnes grading 15.4% heavy mineral content (HMC) for Block A of the Boonanarring deposit in Western Australia.

The zircon content for Block A was 25.9% of the 323,000 tonnes heavy minerals contained, at a cut-off grade of 2.5% HMC, much higher than the 11% that was initially estimated.

“The grade of the JORC resources in Block A is far higher than we predicted and this adds further to our confidence in the potential of the Boonanarring project,” said Davies.

Shifting shapes

While there are many feedstock producers vying to get into the TiO₂ space, there are also those who are looking to get out.

Huntsman has gone on the record with its intention to list the business in a couple of years Ñ but could a major list before them?

As IM was going to press news broke that DuPont was to separate its TiO₂ business, so that the Performance Chemicals sector would operate as an independent, publicly traded company after the separation.

Tronox too has said that it is looking to acquire more TiO₂ properties.

All bets are off then as to what the next twelve months will bring in the TiO₂ market, but one thing is for certain - this is a space to watch.