Mineral industry gears up for post-summer activity

By Laura Syrett
Published: Wednesday, 03 September 2014

Potash miners unlikely to accept price erosion; Soda ash prices buoyed by capacity decreases; Substitution threat looms over zircon prices

The month of August saw the release of more first half earnings statements from mineral and chemical companies, many of which used the opportunity to offer price guidance for the remainder of the year.

Agrimineral producers continued their upbeat assessment of the market, although a report released by banking group Goldman Sachs in late July warned that the flush of stockpiling seen during the six months to the end of June is likely to tail off in the coming months.

In the chemicals industry, soda ash prices have been strengthening outside China in the wake of capacity shutdowns across the world, leading US producers in particular to anticipate widening margins in the next two quarters (see pp14-15). Caustic soda prices, meanwhile, are suffering from flat consumption and excess production.

The mineral sands industry saw local pricing pressure on Indian ilmenite as unforgiving trade duties send Chinese business to Africa, while zircon buyers have warned that any increase in selling prices could jeopardise downstream markets.

Agriminerals - retaining optimism

Phosphate

Benchmark FOB Tampa, Florida, spot prices for fertiliser grade phosphate have improved significantly from 2013 levels, despite lower crop prices in the first half of 2014 and the start of the third quarter.

Russian phosphate producer PhosAgro said in its H1 2014 earnings update in late July that prices for diammonium phosphate (DAP) on an FOB Florida basis had recovered by around 18% this year, from around $407/tonne at the beginning of 2014 to $480/tonne by the end of June.

“Looking forward to the remainder of 2014, we believe that the market remains strong and we are seeing prices for DAP increasing to and above $500/tonne in all markets, with FOB Tampa at $510/tonne for the last two weeks, despite declining prices for the soft commodities basket,” PhosAgro CEO Andrey Guryev said.

Guryev also noted that ammonia is currently priced around $500/tonne while sulphur values continue to increase from a base of above $150/tonne for most producers.

Rival producer EuroChem said in mid-August that it had seen a slowdown in the previously observed rise in nitrogen and phosphate-based product prices in Q2.

Prices (FOB Baltic Sea) for monoammonium phosphate (MAP) for the quarter fell 7% to $456/tonne, while DAP prices average $457/tonne, a decrease of 8% year-on-year (y-o-y).

Potash

Potash miners are unlikely to accept lower prices for the fertiliser mineral in the second half of this year, sources have told IM.

The comments were prompted by a report from Goldman Sachs which said that the boost to potash demand and prices seen in the first two quarters of 2014 was likely to be temporary, as buyers took advantage of low prices to build up stockpiles.

Prices for potash had begun to recover from the $300/tonne mark seen at the beginning of this year, with major producers including Uralkali, PotashCorp and Vale all reporting price improvement in Q2 2014.

Brazil-based Vale, which released its second quarter results in early August, indicated that average selling prices for potash had increased by around 7% to $358.49/tonne, up from $336.21/tonne in Q1 this year.

EuroChem said contract prices (FOB Baltic Sea) for muriate of potash (MOP) averaged around $292/tonne for the second quarter of this year, meanwhile, which was a 21% decline y-o-y.

Spot prices (FOB Baltic Sea) were also significantly below the 2013 price of $402/tonne at $283/tonne.

Market commentary

Sources told IM that while Goldman Sachs’ view that fertiliser mineral demand would ebb in the second half of the year accorded with wider analysis of the potash market in H1 2014, miners are expected to stick to their guns and ensure flat pricing rather than allow the market to retreat in the coming quarters.

Russian potash miner Uralkali has even hinted that it may raise its benchmark Chinese potash price by 10% next year.

Renewed confidence in the medium to long-term prospects for fertiliser minerals and agricultural commodities are among the chief reasons behind the recent price recovery in both phosphate and potash, as well as robust demand, sources said.

Market participants added that the increasing use of agriminerals in higher value speciality fertilisers are also contributing slightly to stronger prices.

Demand is also expected to remain robust in North America, according to recently published outlooks from Mosaic and PotashCorp.

The outlook in India, the world’s second largest potash market, is less rosy, however, with forecasts predicting that rainfall over the country as a whole for the 2014 southwest monsoon season (June to September) is likely to be below normal, at 93% of the long period average (LPA).

This is likely to mean lower planting rates for the agricultural sector and therefore less demand for fertilisers for the next growing season.

Chemicals - China causing concern

Iodine

Prices for iodine have been broadly stable over the summer, sources have indicated to IM, raising hopes that the market slide may have come to a halt.

The settling could just be a hiatus in the softening of prices, however, as it remains unclear whether the market has bottomed, given that some capacity increases in Chile reportedly remain on track and Chinese demand does not appear to have increased.

At the beginning of the year, market participants said that they were anticipating a price floor of between $40/kg and $45/kg to be reached in 2014, with some warning that values below this range would be unsustainable for many producers.

Sources told IM in August that prices of $42/kg are still being achieved, but this is believed to be for insignificant volumes of iodine for fine chemical and speciality applications.

The majority of business is thought to be being concluded at prices between $36/kg and $41/kg - a range broadly flat with the end of June.

Soda ash

Soda ash prices are under pressure in China as the industry struggles with weak downstream demand from glass makers.

Glass consumption is suffering as a result of stuttering growth in construction, automotive and manufacturing in the world’s second largest economy, prompting soda ash producers to look to export margins to compensate for poorly performing domestic operations.

FOB China prices for soda ash are reported to be around $220-230/tonne at present.

Elsewhere, Indian prices are reported to be up slightly over levels seen earlier this year, after the closure of Tata Chemicals’ Magadi soda ash plant in Kenya reduced supplies to the country.

Ex-works India material is reported to be around $300-320/tonne.

North American prices have softened, meanwhile, as US producers have been able to take advantage of low energy costs to maintain margins at competitive prices.

US-based FMC Corp. said that domestic prices had risen slightly in the second quarter of 2014 but were broadly steady.

“We had pricing stability in the low single-digit percent [domestically] in North America [and] stability in Latin America and good pricing traction, with double-digit percent increase in Asia,” CEO Pierre Brondeau said.

Ex-works US prices are between $160-200/s.ton, while FOB Wyoming values are averaging slightly above the $200/tonne mark.

In the UK, meanwhile, some market reports suggested that prices in the UK rose by around $25/tonne in August compared with July.

Caustic soda

Caustic soda (NaOH) prices have remained weak so far in 2014, having started their decline in January after a year of relative stability in 2013.

The market has been on a downward trend throughout the year, with softness in the spot market in the first quarter of the year feeding through into contract prices by Q2.

Prices in Europe have been hampered by increased production when demand has remained steady at moderate levels.

In the US, declining consumption of chlorine, which is produced as a co-product from the synthesis of caustic soda, is also reported to be holding back the market.

Export prices for caustic soda (bulk) are priced between $320-350/s.ton FOB USA and around $255-320/tonne ($340-427*/tonne) FOB Rotterdam.

Prices within Europe are reported to be between $300-370/tonne ($400-494/tonne) for contract orders, depending on volume.

Market commentary

Iodine demand is currently reported to be stable but flat, meaning that the activation of further production capacity this year could push prices lower.

Earlier in 2014, it was thought that a planned increase in production by Chilean miner Cosayach would be held back by delays to its seawater pipeline project, but the company has since confirmed to IM that the pipeline to supply its iodine operations in Tarapaca, northern Chile, is on course for completion by the end of this year.

This will allow the company to increase production from 4,000 tpa to 6,000 tpa iodine in the course of 2015, it said.

Rival producer Sociedad Quimica y Minera (SQM) is also vying for market share, meanwhile, and aggressive marketing strategies within the country may cause prices to weaken further in the coming months.

In the soda ash market, meanwhile, FMC said that the reason for firming prices is linked to dwindling production capacity: “Because there is no major capital spending [on new capacity] forecasted in Asia (...) we start to see the demand and supply balance getting better,” CEO Brondeau said

“There [have] been, in the last year or so, about 1.5m tonnes of shutdowns that actually have occurred across the globe. So net-net, supply has actually been decreasing [versus] capacity that has currently been on line,” FMC’s president, Edward Flynn, pointed out.

Belgium-headquartered Solvay closed its production facility in Povoa, Portugal, earlier this year but is expanding output by 12%, or 150,000 tonnes, at its Green River factory in Wyoming, US.

This expansion is not expected to counter the effect of recent plant closures by Tata Chemicals in the UK and Kenya as well as Penrice Soda Holdings in Australia, however. Delays to new projects in Turkey are also adding to the risk of a shortfall of soda ash on the European market.

Growing demand for soda ash over the next decade is expected to be driven by consumption of both flat and container glass in emerging economies, with chemicals consultancy IHS predicting an annual growth rate of 3.1% to 2024.

Prospects are gloomier for caustic soda, however. An initiative by the European industry association, Eurochlor, prohibiting plants without modern membrane technology from operating beyond 11 December 2017, is expected to shortly be approved and could potentially affect around a quarter of existing caustic soda plant capacity in Europe.

Given that caustic soda margins are under pressure, it is likely that some producers will mothball plants rather than invest in upgrades.

Mineral sands - stiff competition

Ilmenite

The Mining Engineers’ Association of India (MEAI) has asked the Indian government to withdraw a 10% export duty imposed on ilmenite ore and 5% export duty on upgraded ilmenite, local news service Business Standard reported in August.

According to the MEAI, China, which is the main export market for Indian ilmenite, has already stopped buying the mineral from India as imports from Africa are cheaper and available in large quantities.

MEAI leaders said the situation was also affecting prices. “The price of Indian ilmenite was around $200/tonne some time back and it has come down to around $110/tonne now,” said Arjeth Bagchhi, president of MEAI.

Zircon

Prices for zircon are reported to be stable after softening throughout the first half of this year.

During late July and August, a steady stream of mineral sands producers, including Rio Tinto, Tronox and Kronos Worldwide, reported lower y-o-y pricing for zircon in H1 2014, although Tronox did report a 1% sequential increase in prices in the second quarter.

Chinese zircon buying activity is typically quiet in the summer months, with reports indicating that the stasis in the market has left prices flat in July and the beginning of August.

Benchmark prices for zircon on a CIF China basis were set for Q3 at around $1,160/tonne, although sources told IM that deals were being concluded below this level.

Prices will be reviewed again before that start of the fourth quarter of this year.

Meanwhile, Goldman Sachs has predicted that the market will improve on rising demand towards 2015.

Market commentary

The loss of Chinese custom is a significant blow for the Indian ilmenite industry, as the quality of the material is lower than that mined from other countries and only finds significant demand in China.

India contributed around 5%, or 340,000 tonnes, of world ilmenite production in 2013, USGS estimates show. Bagcchi pointed out that domestic reserves are under exploited, with India’s production to reserve ratio of ilmenite standing at just 0.001.

According to MEAI, India is losing market share to Africa, as it struggles to deal with regulatory changes in the mining industry, export duties, poor infrastructure, inconsistent power supply and expensive waste disposal charges that make upgrading Indian ilmenite financially unviable.

For zircon, sources said that consumers of mineral sand continue to favour alternatives, particularly in the ceramics industry, because substitute materials are cheaper and buyers are concerned about future large hikes in zircon prices.

Europe-based buyers have told IM that today’s prices are just about sustainable with the current volumes of business available, but further increases will be seen as detrimental to the downstream businesses.

Sources also hinted that mineral sand producers may attempt to push up zircon prices in an effort to compensate for the current weakness in TiO2 feedstocks.

Elsewhere, prices of Vietnamese mineral sands are reported to be under pressure from overcapacity and flat demand from China.

Full information on all IM’s prices can be found on the IM Prices Database.

*Conversion made August 2014