Prices lag rising consumption in industrial markets while speciality grades look up

By Laura Syrett
Published: Tuesday, 27 May 2014

Bauxite values stable following Q1 price rises; Paper grade kaolin prices increase as costs bite; Rutile “tough” business in China-led market

A swath of first quarter exploration and production results released in May for industrial mineral companies revealed that both demand and prices are broadly stable across refractory materials, while consumption is rising for minerals used in pigments, fertilisers and drilling fluids.

Excess capacity in some markets, including rutile and refractory grade graphite, is keeping prices down at low levels, although steady demand trends mean that values for these minerals are unlikely to fall significantly this year.

From a broader financial perspective, the end of the mining industry’s long austerity chapter could finally be in view, with a number of miners signalling plans to increase spending on R&D, having adjusted to weaker pricing environments.

Rio Tinto, the world’s second largest miner, intimated in its AGM in May that it may be in a position to pursue growth initiatives in place of capex restraint by 2015, after more than two years of aggressive cost-cutting.

CEO, Sam Walsh, said that forthcoming investment decisions will not be based on current mineral prices, but on “the bigger, longer picture”, which Walsh expects to improve as net mineral consumption increases and a strengthening global economy frees up more funding for mining projects.

In the securities markets, latest stock exchange figures suggest that equity funding is beginning to trickle back into mining stocks, although funding for explorers remains tight and the financial environment is not yet strong enough to support a recovery in mining IPOs (see p12).

Bauxite

Prices for refractory grade bauxite have reportedly been stable since March after rising by around $30/tonne in the first quarter of this year, as orders and inventory levels remain steady.

Chinese refractory bauxite (Shanxi, FOB Xingang, round kiln, 87% Al2O3, lumps 0-25mm) was reported to be selling at $375-430/tonne in May. Prices of $430-440/tonne were quoted on an FOB Tianjin basis, meanwhile.

A recent report by iAbrasive said that concerns over a lack of metallurgical grade bauxite shipments from Indonesia this year had helped to push up values for refractory grade material, which may explain the slight price rises seen in Q1.

Market reports indicate that domestic Chinese demand for refractory bauxite has remained unchanged since March, while India, one of the biggest consumers of refractory raw materials, also saw flat imports of around 1m tonnes of round kiln, 86% Al2O3 material during the final month of Q1.

Although buyer inventories are reported to be low and demand steady, ready availability of material means that consumers are not rushing to restock.

Bromine

Three of the world’s major bromine producers, US-based Albemarle Corp. and Chemtura Corp. together with China’s Gulf Resources Inc., have all offered similar predictions that bromine prices are likely to remain weak but steady for the rest of this year.

Values for the chemical have been stable since the start of 2014 at around $1.6-1.75/lb ($3.50-3.85/kg) and $3,000-3,180/tonne (bulk).

Speaking during the company’s Q1 2014 post earnings conference call, Albemarle management said that indications from the market during the three months to the 31 March were that prices were unlikely to change.

“We’ll continue to be watching and then observing what’s going on in the market for demand and seeing where things are going, but right now we feel we can overall maintain pricing about where it is for the year,” CEO Luke Kissam said.

Matthew Juneau, senior vice president at Albemarle, added that the company’s recent price increases for its “tetrabrome” products had “not totally stuck” since they were implemented last year.

Rival Chemtura was marginally more positive in its consumption forecast but echoed Albemarle in offering a stable outlook for prices.

CEO Craig Rogerson said that Chemtura’s 2013/14 price increases for its tetrabrome products were “sticking to a reasonable extent” and noted that increasing uptake of more expensive brominated chemicals by the flame retardant industry was helping to offset falling consumption of traditional bromine-based HBCD products.

Meanwhile, Asian producer Gulf Resources said that its weak but steady price expectations offered the company an opportunity to grow its bromine business by acquiring further assets.

Fluorspar

Fluorspar prices remained stable during the latter part of April before South African acid-grade fluorspar (acidspar) prices fell again in mid-May.

According to IM Data, the price of acidspar (97% CaF2, dry filtercake, FOB, Durban, South Africa) is now $310-340/tonne, down from the $340-370 range seen since the middle of March this year.

“This adjustment is a reflection of the ongoing contraction in the size of acidspar demand,” IM Data analyst, Andy Miller, said.

“South African prices have fallen to compete with low-cost Chinese supplies, however we are not expecting major decreases across other regions for the time being,” he added.

Graphite

Price increases for Chinese graphite are likely to soon affect values for high purity material produced for specialist applications, such as batteries, IM has learned.

Sources familiar with the production situation in Shandong province, which is the principal source of ‘high end’ processed graphite products, including spherical and expandable graphite, said that plant closures in and around the city of Pingdu has reduced supplies of these speciality materials.

In the neighbouring city of Laixi, which is also an important producer of high value graphite products, there have so far been no reported plant closures, although factories in the area are expected to face enforcement of environmental regulations, which could affect production, in the near future.

“This situation has had an influence on the prices of chemically purified graphite and expanded graphite, which are the main products coming from plants in that area,” the source said.

Prices for high purity graphite (-100 mesh, 99.5% C) have reportedly risen by 5-10% as a result of the cut in supply, with the same situation seen for prices of expandable graphite and spherical material used in lithium-ion batteries.

“A good price for this type of material [-100 mesh, 99.5% C] would normally be around $1,200/tonne FOB China, but these have now increased to more than $1,400/tonne - around $1,420-1,450/tonne,” a source said.

One trader told IM that they expect to start introducing price increases for spherical and expandable graphite to customers in the coming weeks.

Prices for refractory and foundry grade material (-100 mesh and +80 mesh grades, 80-96% C) are not expected to be affected, however.

Kaolin

Prices for paper coating grade kaolin in the US have fallen as consumption of the clay by paper markets remained flat in 2013.

Values for No.1 paper coating grade kaolin (ex-Georgia plant) have dropped to $130-$180/s.ton from $167-$217/s.ton.

No.2 paper coating grade (ex-Georgia plant) material is priced at $112-175/s.ton, having risen marginally from $107-167/s.ton late last year as a result of higher manufacturing costs.

Market sources suggested to IM that the decline was due to kaolin producers lowering their prices as a result of increased competition in the paper coatings and fillers market.

Prices for Brazilian paper coating grades remain slightly higher, meanwhile, at $195-250/tonne (5% moisture, bulk, C&F Europe) and $230-280/tonne (slurry form, bulk, C&F Europe).

Lithium

Sources in the lithium industry have reported a resurgence of market activity following the announcement in February that electric vehicle maker Tesla Motors plans to build a new lithium-ion (Li-ion) battery facility in North America.

Orders for lithium carbonate equivalent (LCE), which is used to make Li-ion batteries and is currently priced at around $6.20-6.80/kg ($2.80-3.10/lb, del. US), have picked up, sources told IM, although prices have not yet surpassed 2013 levels.

Lithium hydroxide (LiOH), for which the main market is industrial greases but which is also finding acceptance in the battery industry, is priced at $6-6.60/kg (del. Europe or US) and is also seeing higher demand.

Prices for LiOH slipped towards the end of last year and lithium carbonate remained flat after a lacklustre 12 months for lithium, but market participants said they expect prices to match last year’s averages with increases possible later in 2014.

US-based FMC Corp. recently raised its prices for lithium hydroxide by 10% globally. “We are currently experiencing very high operating rates, as demand for high quality lithium hydroxide has grown,” the company told IM.

“Prices for lithium carbonate and lithium chloride are relatively flat versus last year, [while] prices for butyllithium are up modestly,” FMC said.

Phosphate

Phosphate producers continued to report pressure on profit margins in May, despite higher sales, as a result of weaker prices (see pp18-19).

Agrium Inc. saw its first quarter 2014 profits plunge 92% on lower prices combined with the impact of a record cold winter across North America in 2013/14.

Realised phosphate sales prices for the quarter averaged $544/tonne, down from $698/tonne in Q1 2013 reflecting weak global market conditions at the end of 2013 and the start of 2014, Agrium said.

Rival producer Mosaic, meanwhile, reported an average diammonium phosphate (DAP) selling price of $414/tonne in Q1 2014 compared with $491/tonne the previous year.

Potash

As with phosphate, potash price pressure was a key factor in the decline in earnings for fertiliser mineral producers.

Germany-based K+S Group reported a 7% fall in revenue to to €1.19bn ($1.62bn*) for the first quarter of 2014, following the turmoil in the global potash market in the second half of 2013

“The principal cause of the revenue decrease is a significantly lower price level on the global market compared to a year ago, as well as slightly lower sales volumes than in the same quarter a year ago,” the company said.

Agrium reported that muriate of potash (MOP) prices fell to $267/tonne down from $376/tonne year-on-year (y-o-y).

Rare earths

Belgian vertically integrated chemicals producer Solvay this week posted net income for Q1 2014 of Û121m ($167.8m), up from Û101m for the previous year’s Q1, despite feeling the effects of weak pricing in its rare earths business.

The group’s Advanced Materials segment, which encompasses rare earths and silica, recorded a 3% increase in sales at Û658m, although revenue from rare earths declined by 14% y-o-y in Q1 2014 to Û71m.

US-based rare earths miner Molycorp Inc. also reported falling prices when it recorded a wider first quarter loss, y-o-y, in May.

Molycorp sold 3,518 tonnes rare earth products at an average sales price of $33.69/kg in Q1 2014, compared to sales of 3,274 tonnes at an average price of $44.71/kg in the first quarter of last year.

Meanwhile, Chinese rare earths companies are reported to be raising offer prices for praseodymium-neodymium (Pr-Nd) oxide as speculation continues to circulate over possible plans for a national stockpile of the minerals.

Neodymium prices are currently around $65-70/kg while praseodymium values are $170-185/kg, according to the IM Prices Database.

Reports of government backed hoarding of rare earths recur frequently in China and tend to lift the market temporarily when buying activity is otherwise weak.

Rutile

Rutile market participants interviewed by IM in May described the industry in terms ranging from “tough” to “terrible”, even though sales for the mineral sand have been at a healthy level so far this year.

Prices for rutile have widely dropped below $1,000/tonne as cheaper Chinese material, which currently sells for around $850-950/tonne (concentrate, min 95% TiO2, bulk, CIF China), has eroded the value of more expensive, long-standing contracts from Australia.

One source told IM that the rutile business was “tough”. “China is very much a discount market for rutile at the moment (...) You still see prices of around $1,100 tonne, but these are generally legacy contracts for Australian rutile sold to Korea and are not really reflective of the market,” the source added.

Another source described the present state of the rutile market as “terrible”, even though demand from end markets such as titanium dioxide (TiO2) pigment has recovered slightly since 2013.

Some industry participants have warned that the unfolding crisis in Ukraine following Russia’s annexation of Crimea in March could disrupt supplies of rutile to the rest of the world.

Ukraine was the fourth biggest producer of rutile in 2013 at 60,000 tonnes, according to the US Geological Survey, behind the US (450,000 tonnes), Sierra Leone (120,000 tonnes) and Mozambique (90,000 tonnes).

TiO2

TiO2 prices slipped by around $50/tonne, on average, in April as recovering demand and sales volumes for the pigment feedstock failed to drive up values.

Prices were down in most major consuming regions, with CFR Asia values sliding into the $3,150-3230/tonne range, while CIF Northern Europe were down to Û2,600-2,640/tonne and CIF US prices were at $3,370-3,395/tonne. Prices were not seen to recover these losses in May.

Paints and coatings producer, DuPont, said in its Q1 results that its operating earnings fell partly due to lower TiO2 selling prices, while TiO2 miner Kronos Worldwide reported a 5% drop in average prices year-on-year.

Quarter-on-quarter, Kronos said that selling prices were 4% lower than at the end of 2013, primarily in export markets as a result of “competitive pressures”.

Market participants have suggested that an underlying recovery in TiO2 demand will translate into higher prices in later quarters, although mine production will need to be managed to keep a lid on producer inventories, which could in turn hamper price growth.

*Conversions made May 2014.


ONE TO WATCH
Spherical graphite

Sources told IM in mid-May that they expected to introduce price increases of 5-10% for battery grade graphite products for customers without long-term contracts after processing plant closures in Shandong, China, cut supply.

ONE TO WATCH
Lithium carbonate

Lithium producers have reported an increase in demand for lithium this year and expect prices to surpass 2013 averages in the coming quarters.