Clouds gather for minsands as energy minerals renege on premature optimism

By Laura Syrett
Published: Monday, 22 September 2014

Potash prices strong to 2017, says SocGen; lithium and graphite’s Tesla boost flattened

Industrial mineral markets were slow to get moving in September, with anticipated upticks in buying activity in a number of sectors, including graphite, lithium and iodine, failing to materialise, causing prices to flatten or fall back.

Persistent concerns about the health of the Chinese economy, and in particular its construction industry, also dealt a blow to titanium dioxide (TiO2) feedstock prices (see pp31-35 and p55) and supressed other markets, including refractory minerals.

Agriminerals received a vote of support, meanwhile, as analysis by some banks and major producers predicted that demand and prices will remain relatively healthy in the near term.

Agriminerals - positivity for potash

Potash

Logistical bottlenecks were reported to be pushing up local prices for potash in the US towards the end of the summer, a trend that was at odds with global pricing trends for fertiliser minerals, which had been flat to weak in September.

Buyers in a number of US states said that potash was not available for less than $375/tonne and anecdotal evidence suggested that the majority of deals were being concluded above $420/tonne.

Freight problems were being blamed as a major contributing factor to the higher costs, with benchmark export prices remaining subdued.

Despite the broader weakness in the market, French investment bank Societe Generale (SocGen) has forecast that potash prices will rise until 2017, with Brazilian prices increasing to $400/tonne over the next three years from around $347/tonne at present.

Chinese potash prices, meanwhile, are expected to jump to $360/tonne in 2017 from $305/tonne in 2014, and European prices to $430/tonne from $381/tonne over the same time frame.

Market commentary

In the North American potash market, grain dealers have reportedly tied up many of the barges used to transport the mineral to terminals supplying crop growers in Midwest and central US states.

Rail car availability is also said to be scarce, with most cars bunched together in western US in the first half of September.

Inventories at terminals were reported to be low during the month, with many buyers taking delivery of material immediately on purchase.

Some growers indicated that they would hold back from buying more potash-based fertilisers at current prices, preferring to rely on cheaper lime and gypsum nutrients while they wait to see how prices change in the coming months.

Others said they may reduce their application of potash until the market settles.

Despite this apparent withdrawal of buyers from the North American market, leading potash miner Uralkali said at the end of August that demand had been stronger in the continent than in other regions during Q2 2014, and that it expected consumption to remain robust until at least autumn.

This perspective was reinforced by SocGen’s analysis that the potash industry is likely to remain bullish until 2017, due to high barriers to entry for new miners and the ability of existing producers to control supply.

“We reiterate our more bullish than consensus outlook for the potash sector. We believe consensus is too bearish due to expected supply additions in the medium to longer term,” SocGen said.

High profits in 2007-2008 and 2010-2011 led to many potash expansion projects, but few are likely to start producing significant volumes for another three years, which should keep potash prices buoyant. 

Chemicals - more bad news for iodine

Iodine

Iodine prices fell further in September, industry sources reported to IM.

High range prices slipped to $40/tonne early in the month, although these values were said to be only nominal, with deals in spot and contract markets being concluded in the high $30s range, at most.

Europe-based sources said that they were sitting on material purchased at $39-40/kg that they were struggling to shift.

Prices at bottom end of the range now stand at $35/tonne and could fall further before the end of the year, sources said.

IM’s iodine prices (crystal, 99.5% min, drums, spot and contract) now stand at $35-40/tonne.

Market commentary

Some market sources pointed to excess iodine supply chasing too few buyers as a reason for the latest fall in prices, while others have blamed large companies vying for market share allegedly dropping their offers below “sustainable” market levels.

The decline in prices appeared to have come to a halt in August, fuelling faint hopes that the market had bottomed and that Chinese buying activity would pick up in the second half of the year.

Energy minerals - peaked too soon?

Graphite

Graphite prices were broadly stable in December, according to information gathered by IM Data.

The pricing service said that low consumption rates throughout the year have dragged many prices to four-year lows and that despite reduced Chinese production over H1 2014, excess capacities continue to weigh heavily on the market.

The price of lower-value Chinese flake graphite grades fell under the pressure of this excess in August, with average prices down 8% for 90% C, -100 mesh grades (FOB), IM Data reported.

A similar trend was observed for +80 mesh grades, notwithstanding tighter supply conditions in this area of the market.

Lithium

Prices for lithium compounds fell slightly towards the middle of this year, even as producers continued to report strong market demand.

The world’s largest lithium producer, Sociedad Quimica y Minera (SQM) said in its second quarter earnings in August that demand in the lithium market had been “very strong during the first part of 2014, and it is expected to increase approximately 10% in 2014 compared to 2013”, driven mainly by batteries.

It added that prices in its lithium business had fallen by 8% in Q2 compared with Q1 and that the company expects prices will remain flat for the remainder of this year.

IM’s prices for lithium carbonate (large contracts, del. Continental US) have been revised to $2.7-3.1/lb ($5.95-6.82/kg) from $2.8-3.1/lb ($6.16-6.82/kg).

Vanadium pentoxide

Prices for vanadium pentoxide (V2O5) have been on a downward trend since the beginning of 2014, market data shows.

In Europe, having started the year at prices ranging from $5.55-6.10/lb ($12.20-13.40/kg), values for V2O5 (min 98%, Europe main port) quoted by Metal Bulletin (MB) are now around $5.10-5.40/lb ($11.20-11.90/kg).

Chinese export prices stood at $5-5.10/lb ($11-11.20/kg) at the beginning of September, according to other sources, while prices in Japan were reported as being $5.05-5.15/lb ($11.10-11.30/kg).

Prices were said to have fallen by around 10% in these regions in the first half of September.

Market commentary

Many sources were reluctant to speculate on reasons for the decline in graphite or lithium prices, although some market observers told IM that the price increases for lithium reported earlier in the year were the result of premature responses to the news that Tesla Motors plans to build a lithium-ion (Li-ion) battery Gigafactory in the US.

Analysts from Goldman Sachs have predicted that the Tesla facility could consume 15,000-25,000 tpa lithium carbonate (equivalent to 17% of current global output), while IM Data calculated that an additional 93,000 tonnes flake graphite could be needed (112% more than is consumed globally at present), by the time the plant reaches full capacity in 2020.

The Gigafactory is not expected to commence operations until 2017, however, which is a long way off for existing lithium and graphite producers and gives junior companies time to enter the supply market.

SQM said that very little new lithium supply has come online so far this year, which helped prop up demand for its lithium products in H1.

However, sources have warned that if several explorers pile into production ahead of 2017, the additional competition could pull prices down.

In the vanadium market, the price of V2O5, which historically broadly tracked that of ferro-vanadium, has become disconnected from values for alloy material in Europe.

Almost all vanadium produced worldwide is consumed by the steel and titanium alloy industries, with many ferro-alloy producers buying V2O5 for conversion into alloy material, although the cost of this process and the price differential between the two materials is becoming prohibitive.

The metal has also sparked interest as a potential material for next generation vanadium redox batteries, although this only accounts for around 1% of the total vanadium market and few producers expect this industry to have any meaningful influences on prices in the medium term.

Mineral sands - grim outlook for feedstocks

Ilmenite

Prices in the ilmenite market show no sign of picking up in the foreseeable future, market sources told IM in September.

One Asia-based trader said that ilmenite prices that stood at $440/tonne two years ago were now down to around $140/tonne on a CIF China basis.

“There is nothing on the horizon to suggest that ilmenite prices will not keep going down,” the source said (see p56).

“When companies say that they expect the market to turn around in six months’ time, what they mean is that there is no chance of the market improving for at least half a year,” they added.

Other market commentators pointed out that small mineral sands miners, whose projects are heavily reliant on ilmenite, could find themselves in trouble in the near term.

IM’s prices for ilmenite (bulk concentrates, min 54% TiO2) have been revised to $140-155/tonne CIF China.

TiO2

Sources observed that “supply chain mismanagement” and unsustainable pricing strategies in the ilmenite market in recent years have been exacerbated by weaker economic conditions and softer demand from the TiO2 pigment industry.

This mismanagement has resulted in too much ilmenite available in the market, meaning that even as TiO2 demand begins to improve globally, prices of feedstocks are continuing to decline.

IM’s prices for TiO2 pigment (high quality, bulk) currently stand at $3,140-3,230/tonne CFR Asia; Û2,600-2,640/tonne ($3,420-3,475/tonne*) CIF Northern Europe; and $3,360-3,400/tonne CIF US.

Market commentary

Rising demand and a slight improvement in prices for TiO2 pigments have failed to lift prices for feedstock minerals.

Reports from China indicate that pigment prices have improved slightly on the back of rising exports coupled with a cut in domestic mineral sands output over the summer months, while European and US producers have reported strong demand in mature markets.

These trends are not reflected in prices for ilmenite and rutile, however, with miners running operations in China and Africa reporting lower selling values in the second quarter and throughout July and August.

Sources suggested that while feedstock inventories are normalising, they have not so far run down sufficiently to generate restocking and higher prices.

At the end of August, Ireland-headquartered Kenmare Resources Ltd posted a loss of $31.8m for H1 2014, blaming lower year-on-year prices for ilmenite.

CEO Michael Carvill said that the arrival of new mineral sands supply on the global market was preventing a price recovery and noted that improvements in the TiO2 industry have so far not had a meaningful positive impact on feedstocks.

A raft of reforms to improve the environmental performance and energy efficiency of Chinese TiO2 plants could have a positive impact on prices in the medium term, as companies upgrade their technology which is likely to increase costs.

The wide availability of feedstock material on the market means that many deals are still being concluded below list prices. New benchmark contract values are expected to be announced towards the end of September, although these had not been reported at the time of going to press.

Oilfield minerals - braced for the cold

Frac sand

Prices of silica sand suitable for fracking (frac sand) in North America were approaching $80/tonne in Q2 2014 and while the market saw some softening over the summer months, market observers believe that average tonnage values will shoot up again for the fourth quarter.

Market commentary

North American frac sand buyers have been warned to expect a surge in prices over the winter, as long-range meteorological forecasts suggest that the continent is set to experience abnormally cold conditions for the second year in a row.

Jack Cooper Holdings, the largest auto-transporter in North America, said in September that potential polar vortex conditions combined with a recovering US economy, which has translated into higher demand for freight capacity, could see a return of the bottlenecks that virtually paralysed frac sand distribution last winter.

Logistics costs account for more than 50% of the delivered price of frac sand, meaning that buyers without vertically integrated transport solutions can see their costs skyrocket when supply chains become strangled.

“Fracking didn’t begin recovering from winter until April or May this year,” the online oilfield publication, Down Hole Trader commented at the beginning of September.

“The result has been a scramble to catch up. But, we just haven’t gotten there, with continued rail delays and railcar shortages. Soon, the fall harvest will be hitting logistics channels and winter will follow,” it added.

The allocation of freight capacity for grain transportation is also likely to hit frac sand logistics, market observers have warned.

*Conversion made September 2014

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