TZMI 13: Market prepares for the worst

By Siobhan Lismore-Scott
Published: Monday, 25 November 2013

Producers lack optimism of last two years at industry conference in Hong Kong while Jotun urges for better communication from TiO2 producers

Every night, at 8pm exactly, the towering skyscrapers on either side of the gulf between Kowloon and Hong Kong Island come to life in an exquisite light show.

As delegates at the 2013 TZMI Congress watched the sparkling lasers and blinking lights from the panoramic windows of Hong Kong’s Intercontinental Hotel, there was a tangible feeling that the optimism and opulence of the city’s luminescent display was a far cry from the realities of today’s mineral sands markets.

While some presentations retained a veneer of hopefulness for the industry’s near term outlook, and most predicted price rises for the second half of 2014, all retained caveats and advice on what the producers need to do to weather the present bearish climate.

Rio Tinto, Tronox and Sierra Rutile all showed how cost cutting initiatives had helped to maintain healthy business models, while others gave a more sombre assessment of the year that was.

“It’s hard to be optimistic after last year,” Michael Carvill, CEO of Irish mineral sands miner, Kenmare Resources, told IM. “Last year, everyone was optimistic and it didn’t happen”.

Indeed, after the buoyancy of the 2012 congress, when people believed the market had reached the bottom of the trough, this year’s meeting was a wake-up call.

Listen to your customers, urges Jotun

This was nowhere more prevalent than during a presentation by Tor Martin Holtan, group purchasing director of Norway-based paint maker Jotun AS, in which he warned that end users have already started substituting and optimising processes.

Titanium dioxide (TiO2) producers and feedstock miners need to listen more to, and understand better, their customers’ needs, Holtan said.

He urged the industry to pursue better communication: “I think the three of us - the miners, TiO2 producers and paint companies - are in the same boat,” he said.

“Why can’t we understand each other better? I’m not talking about vertical integration but understanding. It is awful if you don’t understand how the coating industry works - that’s your customer,” he added.

Holtan said that after the TiO2 price skyrocketed in 2011, paint companies began to look at other options.

“We started to ask whether we could use other suppliers that we would not normally use,” Holtan said.

Substitution was also considered, he explained. US-based speciality chemicals conglomerate Dow Chemicals began researching substitution for TiO2 and continues to look at this, he added, despite the fact that the mineral price has since come down from its 2011 peaks.

“It’s not just substitution, it’s optimisation,” Holtan said. He explained that in his company, which has 40 facilities, looked at grinding their raw materials more finely, which saved between 5-10% of their TiO2 inputs.

Companies also began to use more coloured paints, he added, and changed the colour tone.

“White is nice, but you can have other colours,” he said.

Up to 25% of the paint market potentially lost

Holtan sent shockwaves through the audience when he said he believed that the optimisation and substitution would mean that up to 25% of former customers could potentially not return to TIO2. Other projections put this figure at closer to 5%.

Speaking to IM, Holtan said that he believed the paint industry’s decision to pursue optimisation strategies is the largest issue facing the TiO2 market.

“I don’t believe there are these masses of inventories which kept the price low,” he said. “I think people are already optimising”.

Tronox expects TiO2 prices to recover in 2014

Notwithstanding Holtan’s warnings that the TiO2 industry may have lost much of its market forever as a result of price spikes, US miner Tronox said it believed that prices of TiO2 will increase in 2014

“Our view is that the industry is about bottoming out,” CEO Tom Casey told congress delegates

“We think this [floor] will stay here for the next quarter or two, but we think 2014 will be a good year - we are optimistic about that,” he added.

Tronox, which recorded a profit of $92m in its latest quarterly results, said the return to higher prices is a four stage process.

First, Casey explained, the supply-demand imbalance has to end. This means the period of destocking would be over, but inventories would still exist, meaning that prices would remain soft.

Then, as pigment producer inventory heads back to the typical -50 day cycle, prices will stabilise, he said.

Following that “as excess inventories sell down and demand increases, plant utilisation rates will increase,” Casey said. This leads to price increases as inventories are back to typical levels and plant utilisation ratesÊare also normal.

Vertical integration

While Tronox is not the world’s largest supplier of TiO2, it is the only completely integrated one, Casey said, following its acquisition of South Africa’s Exxaro Resources last year.

Under the agreement, Tronox acquired all of Exxaro’s minsands operations including 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.

Tronox produces 465,000 tpa chloride-route TiO2 from three plants worldwide, which are supplied by its three mine sites in Western Australia and South Africa.

In 2012, 40% of its TiO2 sales were to the US market, 24% to Europe and 23% to Asia (excluding China, which took 5%). Latin American markets took the remaining 8%.

Rio Tinto underscores commitment to minsands market

According to Anglo-Australian miner Rio Tinto, the long term fundamentals for the TiO2 industry are strong, even if the market is facing challenging conditions, James McCullough, the company’s manager for industry told delegates.

McCullough said that Rio Tinto believed that the TiO2 market has sturdy medium and longer term fundamentals underpinned by pigment demand in emerging economies.

Demand from the construction, consumer durables and packaging industries is expected to grow, McCullough said, but there has been limited investment in new supply.

“We expect that continued higher demand for pigment over 2014 will continue the trend of reducing inventory levels across the value chain,” he said.

Feedstock inventories were at around 60,000 tonnes in 2012 while finished pigment inventories were at around 100,000 tonnes. In 2013, this increased to 90,000 tonnes for feedstock but pigment inventory is estimated at around 40,000 tonnes,ÊMcCullough explained.

Fatality at Richards Bay Minerals

McCullough was giving the presentation in Hong Kong in place of Rio Tinto’s chief operating officer, Andrew Cole, who has flown to South Africa to assist in an investigation following a fatality at TiO2 feedstock producer, Richards Bay Minerals (RBM).

Contractor Sifiso Simphiwe Praisegod Ngubane was working at the company’s Mining Pond C during a stacker move on 6 November when he was killed.

Rio Tinto is conducting an investigation alongside the Inspector of Mines and the South African Police Service into the death.

“This type of incident has a deep and profound impact on all employees across [Rio Tinto],”McCullough said. Operations have been temporarily suspended at the site.

Rio Tinto has a 74% stake in RBM, which experienced violent unrest at the mine site earlier this year when KwaZulu-Natal residents protested about the company’s record of employing local people.

Kenmare Resources to be fully operational by December

Meanwhile, fellow Africa-focused operator, Kenmare Resources, confirmed to IM that following the recent fire at its Moma mine in Mozambique it hopes to be fully operational by the end of November.

Michael Carvill, managing director of Kenmare, told IM that the company has been able to honour all its supply agreements using stockpiled heavy mineral concentrate (HMC) as well as output from its B plant, which came online this year.

“Our production of finished product has not been affected,” Eamonn Keenan, general manager, said.

The fire, which began in the company’s trammel screens, a preliminary screening mechanism, has led to the company reviewing some of its procedures at the mine site, Carvill said.

Ilmenite market

Recent tough market conditions in the mineral sands industry have been felt Kenmare’s bottom line, Carvill said, but added that the fall in the ilmenite price did not stop Kenmare from going ahead with its expansion plans.

“It hasn’t affected us in that sense,” Carvill said. “Prices have gone down [but] we continued to build.”

“We are selling all our products,” Keenan added. “We have got a diversified customer base - we have a number of long term contracts that have been and continue to take volumes. We are not as exposed as some other producers in the market.”

Looking ahead, Carvill said that his faith in forward projections had been “tainted” by the fact there was so much optimism during last year’s TZMI Congress, yet the market continued to fall.

“There was a view in the industry that we would see an end to stockpiling and upward demand,” Carvill explained.

“The market is better, but the path to recovery has been slower than expected,” he added.

“Speaking to our customers they are expecting a more normal year this year [2014],” Carvill told IM.

Working in Mozambique

Carvill said that the company maintains a good relationship with the local community through its work with non-governmental organisations. Kenmare has built several schools in the area, is working with the government to eradicate malaria in the region and has also built a medical centre. It also runs a post-graduate programme for local workers.

“It’s becoming quite normal to do all this,” Carvill said.

Carvill said he decided to get actively involved with the community from the outset.

“You think you’re going to change the world that these people live in [when bringing a mine like Moma online],” he said.

 What else happened at TZMI this year....
Cristal commercial and supply chain executive vice president Thomas van Valkenburgh announced Cristal would be commissioning the first furnace at its 500,000 tpa ilmenite smelting plant at Jazan Economic City, Kingdom of Saudi Arabia, on 1 May 2014. The second furnace is expected to be commissioned 1 June 2014.

Henan Billions’ deputy chairman of the board Ruiqing Tan said that Henan Billions will begin the instillation and commissioning of a chloride-route TiO2 plant in H1 2014, with commercial production earmarked for Q4 2014.

- Ben Simpfendorfer, managing director of Silk Road Associates, showed China’s contribution to global GDP growth remains unchanged even as GDP growth rates slow. Interestingly, he also demonstrated how the Chinese market is changing - more Chinese consumers are ordering goods online, he said.

GPM Asia CEO Natalya Tsoi, said that the Vietnamese government is working hard to develop a domestic TiO2 processing sector and has from time to time intervened in order to stimulate investment in downstream processing. However, she added, even with an ilmenite export tax of 40%, the Chinese still continued to export 800,000 tonnes ilmenite in 2012.

Ruby Ceramics Pvt Ltd director Rajvindra Singh Dhami said that dumping of tiles from China is the biggest problem the Indian ceramic market faces, followed by imports and the unorganised tile sector. Rising energy costs are also affecting the ceramic sector, he said.