Shifting sands: substitution and expanding markets

By Kasia Patel
Published: Friday, 27 June 2014

Zircon and its derivatives face an uncertain future owing to competition from substitute materials, but where is additional demand expected to come from? Kasia Patel, Chief Reporter, investigates.

According to the Zircon Industry Association (ZIA), an industry body set up in 2013 to represent and promote the interests of the zircon industry, zircon and its derivatives face a number of threats including competition from substitute materials, such as alumina in ceramics applications, and ever increasing industry regulation.

Owing to its versatile range of properties, such as high refractive index, high melting point and thermal stability, zircon finds applications in a wide variety of end markets, including ceramics, chemicals and refractories.

Although, in the past few years, the market has been notoriously difficult to predict, less volatility seen more recently is likely to rebuild confidence in the value chain, with the general consensus from producers being that additional supply will be needed in the future to account for a growing demand, particularly in the ceramics and chemical sectors.



SUPPLY SECURITY

Zircon supply is generally consolidated amongst three producers that between them account for two thirds of the global production of zircon and high grade TiO2 products; Rio Tinto, Tronox and Iluka. Zircon production from Australia of 600,000 tonnes (see Figure 3), accounted for the largest proportion of the 1.44m global total in 2013, closely followed by South Africa with 360,000, and China with 140,000 tonnes, according to US Geological Survey (USGS) figures.



Iluka

The largest global producer of premium zircon sand is Iluka Resources with operations both in Australia and Virginia, US. Between 2010 and 2012, the company produced, on average, around 452,000 tpa zircon. However, following the global slowdown in economic growth, the company’s zircon output dipped to 285,000 in 2013, though its most recent forecast anticipates a rise in its total zircon production to 360,000 tonnes in 2014.

Although some pressure on price structures in the zircon value chain has been evident in Europe, this, Iluka noted, has been associated with competition seen in the market share of downstream customers, which Iluka has chosen not to be drawn into.

The company added that zircon sales year-on-year have been lower than in the previous year, while second half year sales in 2014 are expected to be greater than in 2013.

Tronox

Tronox Ltd is the world’s second largest zircon producer, accounting for around 20% of global supply, and is the third largest titanium feedstock producer, accounting for approximately 10% of the world’s feedstock production. The company’s global zircon operations have a combined production capacity of 265,000 tpa zircon.

Tronox’s mineral sands operations are based in Namakwa Sands and KwaZulu-Natal (KZN) Sands in South Africa as well as in Western Australia. Tronox sources over 770,000 tpa heavy mineral concentrate (ilmenite, rutile and zircon) from strandlines at Cooljarloo in Western Australia, using dredging operation and dry mining techniques. The heavy mineral concentrate is produced 170km north of Perth and then transported via side tippling triple trailer road trains to Tronox’s Chandala plant for separation and processing.

Tronox produces approximately 450,000 tonnes of ilmenite, 80,000 tonnes of zircon, 37,000 tonnes of rutile and 20,000 tonnes of leucoxene a year at Chandala.

A growing supply

Figures from JP Morgan indicate that zircon supply is expected to balance out in 2014, with both existing suppliers and juniors keen to develop any additional supply that will be needed.

Iluka is in the process of developing additional supply from three projects in Australia; Cataby, in Western Australia, Balaranld in New South Wales, both in DFS stages of development, and its JA zircon satellite deposits, in the prefeasibility (PFS) stage, in Southern Australia. The company is also developing two US projects; the Hickory project in Virginia and the Aurelian Springs project in North Carolina, both in the PFS stages of development.

Other major producers looking to expand zircon capacity in South Africa include Richards Bay Minerals, a subsidiary of Rio Tinto Iron and Titanium, and Tronox Sands, both developing projects in the KwaZulu-Natal region. The Tronox Fairbreeze mine is already under construction, and has an anticipated 2015 start-up, while Rio Tinto’s Zulti South mine, which has a 25 year mine life, is expected to come on stream in 2016.

As well as existing producers hoping to absorb additional demand, a handful of juniors are also looking to bring new zircon capacity online in 2014. Base Resources, which is now in production in Kenya, is looking to produce 30,000 tpa zircon from its Kwale mineral sands project for the first seven years, and 19,000 tpa zircon for the following six years.

TiZir Ltd also began mining in March of this year, with expectations of 40,000 tonnes zircon production in 2014, ramping up to 85,000 tpa in 2015. Additional new supply is anticipated from Kenmare Resources as its Moma Phase 2 expansion project is rolled out, increasing capacity from 50,000 to 75,000 tpa, as well as from operations at Southern Ionics’ development in Georgia, US, hoping to produce 5,000 tonnes zircon in 2014 with a subsequent full capacity of 30,000 tpa.



MARKET DEMAND

The zircon industry is expected to recover as the breadth of zircon end markets has increased, driven by a growing demand for ceramic tiles as well as its use in innovative markets, mitigating, in part, a drop in consumption volumes.

In 2013, consumer zircon inventories were running down, and the market is expected to move back into undersupply between 2015 and 2016. However, despite the fact that demand for zircon saw a dramatic decline between 2011 and 2012, according to JP Morgan, it is expected to grow by an average of 3% a year, reaching around 1.5m tonnes in 2014.

Rio Tinto meanwhile cited zircon demand as outstripping supply by 2018, rising to around 1.6m tonnes in 2020 from under 1.25m tonnes in 2014. Emerging markets are expected to drive future growth, but the company expects demand to return in Western Europe and China also.

“We estimate that underlying zircon demand has been reduced by over 200,000 tonnes through thrifting and substitution,” Rio Tinto said in a presentation given in June 2014.

“As stock levels return to historical levels, market conditions have stabilised and we expect demand to return to growth based on underlying drivers,” Rio Tinto added.

The company said that the zircon inventory which was built up in 2012 was largely unwound in 2013 “due to production curtailments and firmer demand”.



Ceramics

Zircon demand has been led by China, which accounted for 41% of total consumption in 2011, while European demand accounted for 25%, Asia Pacific for 18% and North America for 8%. Production of zirconium concentrates experienced a slowdown in 2012 due to a reduction in Chinese consumption owing to a sluggish economy, which in turn led to a drop in housing construction and inevitably lower demand in the mineral’s biggest end market - ceramic tiles and sanitaryware.

Despite the drop, figures from Roskill indicate that China remains the largest sanitaryware producing country, accounting for 44% of production in 2012. Zircon’s major application worldwide is in ceramics owing to its opaque and hard wearing properties. Adding opacity, whiteness, and water, chemical and abrasion resistance, the mineral is used in ceramic bodies, frits, glazes and engobes.

Figures from TZMI indicate that the ceramics industry was the largest end market for the 1.4m tonnes of zircon produced in 2011 (accounting for 55% of zircon use) increasing by an annual average growth rate of 5% thanks to drivers such as urbanisation and construction.

The industry is seeing growth in developing countries where growth in urban population and floor space mean that an increase in consumption of industrial minerals such as kaolin, zircon and feldspar are expected over the next decade.

According to figures from the McKinsey Global Institute, urban expansion forecasts suggest there will be an additional 85% of current total floor space, or an increase of more than 80,000km2, between 2010 and 2025. The majority of this growth is expected in developing economies such as China, India and Latin America, while improvements in the construction sector and a booming hotel industry have also driven up both consumption and production of ceramics in the Middle East.

Figures from TZMI and ACIMAC also show that global zircon consumption in ceramic applications grew steadily from just under 600,000 tonnes in 2003 until it reached just under 800,000 tonnes in 2011. However, consumption in ceramic tiles dropped to just over 500,000 tonnes in 2012. Zircon intensity in ceramic applications has also decreased, beginning at over 100 grams/square metre in 2003, and steadily declining to less than 50 grams/square metre in 2012.

Part of the decline in zircon use is owing to substitution in the industry, with some ceramic producers opting for products such as alumina in ceramic applications due to lower costs. However, test work carried out by the ZIA comparing substitute materials in ceramic applications have revealed poor results.

According to Chris Barrington, chairman of the ZIA, when alumina is used as a substitute in engobes, the flux content must subsequently be increased to compensate for the refractoriness of alumina. Likewise, tests yielded poor results in glazes and porcelain bodies.

“Substitution of zircon with alumina is possible [in porcelain tile bodies] but alumina is less effective as a whitener on a weight basis, and causes the firing temperature to increase,” Barrington said.

Additional testing using a TiO2-based white frit also led to the ZIA to conclude that “there are no viable substitutes for zircon-based white frits.”

Chemicals industry

Figures from Alkane Resources indicate that the zirconium chemicals market made up only 18% of zircon demand in 2011, but the company expects the market to grow by 11% year-on-year over the next decade, from 194,000 tonnes in 2011 to 239,000 tonnes by 2020. According to the company’s managing director, David Ian Chalmers, this means that there is an ever pressing need for premium zircon.

Though the ceramics sector is the largest end market for zircon, it is not expected to grow by more than 5% CAGR, meaning the chemicals sector is the fastest growing end use for the mineral. By 2020, it is expected to account for 21-25% of all zircon demand; an increase of between 48 and 72%.

Additional supply of around 160,000-180,000 tpa premium zircon will be required, with low Al2O3 and a minimal particle size of <45 micron. Additional issues faced by the industry are increasing environmental OH&S cost pressures, as well as the consolidation of the Chinese fused and zirconium chemical industry, the production of which accounts for around 75% of the market, according to Alkane.

Based on the expected demand increase, the company hopes to become a major supplier of zirconium materials and other critical metals and oxides by developing its Dubbo zirconia project in New South Wales, Australia. Feasibility for the project has been completed and financing is in progress. Construction of the project is scheduled for the end of 2014, while first production is anticipated by 2016.

Chinese demand

China imports over 80% of its zircon requirements, importing just over 300,000 tonnes zircon sand in 2012, down from 2011 imports of around 430,000 according to TZMI data. The largest proportion of these imports come from Australia, accounting for more than half of Chinese imports, followed by South Africa. However, despite a weaker zircon demand, zircon concentrate imports increased slightly between 2011 and 2012, from around 440,000 tonnes to 455,000 tonnes.

TZMI figures for Chinese demand in 2013 estimate that the ceramic industry accounted for 48% of zircon demand, while speciality chemicals and materials accounted for 30% of demand. This includes applications such as industrial and auto catalysts, dielectric and piezo electric devices, TiO2 pigment coating as well as other zirconia and zirconium chemicals.

Both glass and steel making refractories accounted for 15% of demand in 2013 in China, with an additional 5% from foundries, used in investment and sand casting. The remaining 2% accounted for other applications.

PRICE TRENDS

According to Iluka, the industry has suffered from a prolonged period of poor upstream industry returns, which have been exacerbated by contracts. Volatility in demand and pricing has also led to minimal new investment and a limited pipeline of new supply options, as well as limited technology contributions.

Sales projections of major zircon producers like Iluka and global Tronox indicate that demand for mineral sands is stabilising and even increasing in some markets, although mineral prices are still lagging behind this recovery (see p21).

Prices for zircon weakened slightly during May 2014, but industry participants now expect that prices will remain at current levels until at least the end of the present quarter. Offer prices for Australian zircon sand (min 66% ZrO2, bulk, CIF) are reported to be between $1,200-1,300/tonne, with suppliers settling for prices at the lower end of the $1,200-1,250/tonne (CIF) range for large volume orders.

Meanwhile, prices for Indonesian zircon sand (min 66% ZrO2, bulk, CIF) stand at around $1,150-1,200/tonne, slightly above China where prices have slipped below $1,100/tonne, although dwindling producer inventories and reluctance to sell is reportedly stopping prices from falling further.

Chinese producers are also said to be standing firm over prices as margins are under pressure from high operating costs and the recent softness in selling values.

Zircon prices are also expected to firm up in 2014 as ceramics markets return to the mineral sand after substituting into less effective, cheaper alternatives in response to the price spikes of 2011 and 2012.

MARKET OUTLOOK

According to TZMI’s outlook for zircon, the market has bottomed out from the pricing drop it experienced in 2012, but despite a recovery in volumes, pricing remains flat and weakness remains in the market. The housing market in China, however, remains a good source of growth for the mineral and, TZMI added, volumes appear to be holding up in the industry.

While industrial markets remain weaker, with some thrifting continuing in refractory and foundry materials, consumer markets remain a source of latent growth.

Though the fastest growing end market remains the chemical industry, in terms of actual volumes, the ceramics industry, driven by population growth and in turn increased expansion in housing and construction, will remain the biggest opportunity areas for zircon producers. The industry is seeing a revival, albeit largely geographically varied and focused in developing or emerging markets where urbanisation is taking place in countries such as Brazil, the Middle East and China.

In Europe some slow demand recovery for zircon is expected over the course of 2014. Chinese demand is also expected to improve as stockpiles are depleted, although India remains an important emerging market.