Falling oil price sees mixed impact on industrial minerals

By Laura Syrett
Published: Saturday, 24 January 2015

Uncertainty hangs over agrimineral prices; Oil slump brings doubts for barite and frac sand; graphite sluggish but stable for Q1 2015


Laura Syrett

The plunge in the price of oil over the last six months has been given a mixed reception by the industrial minerals industry, with various sectors reflecting on the benefits of cheaper energy weighed against concern about the deflationary impact of low oil prices on the wider economy.

US titanium dioxide (TiO2) producer Huntsman Corp. said in early January that it expected to feel long term benefits from the lower price of raw materials it derives from oil refining - welcome savings when pigment prices remain flat, despite evidence of a recovery in feedstock demand noted by Iluka Resources Ltd.

Spot prices for oilfield minerals including silica (frac) sand used in hydraulic fracturing (fracking) are beginning to look fragile, meanwhile, in the face of dwindling oilfield activity and rising production capacity. Price declines are not expected in the near term, however, as oilfield service companies still have contracts to fulfil this year.

Elsewhere, the tumbling oil price looks set to hit electric vehicles as conventional petrol-fuelled cars become cheaper to run. This in turn is likely to hurt demand for battery minerals like graphite or lithium, although whether or not this weakness feeds through to prices will depend on the duration of the oil slump.

Away from oil, a question mark hangs over agriminerals this year, as buyers seek to prolong the discounts they have been receiving since Q3 2013. Meanwhile, commentators continue to debate the impact of China’s decision to cancel rare earth export quotas in this market.

Agriminerals in for cloudy Q1

Potash

In mid-January, North American potash trading group Canpotex Ltd, signed a memorandum of understanding with China’s Sinochem Fertilizer Macao Commercial Offshore Ltd (Sinofert) for a minimum of 1.9m tonnes red standard grade potash between 1 January 2015 and 31 December 2017.

Canpotex said that a price for the first delivery had yet to be decided, but once this has been set, it will be renegotiated every six months.

Scotia Capital Inc. said that it was expecting a flat contract price of $305/tonne for the deal, citing recent price declines in fertiliser mineral markets in North America, where potash prices dropped by around 1% in the first half of January, South America and South East Asia. 

This has been compounded by indications from Chinese buyers that they intend to resist higher prices for potash given the low prices enjoyed last year and the present lack of certainty over prices in the wider market.

Phosphate 

Phosphate prices are also reported to have made a weak start to 2015, thanks to declines in the value of products such as diammonium phosphate (DAP) in key markets like India.

Benchmark FOB Tampa, Florida, US prices for DAP currently stand at $460-500/tonne on the IM Prices Database.

Sulphur

In the sulphur market, prices are reported to be following a more positive trajectory so far this year.

Saudi Aramco Trading set its February sulphur price at $180/tonne FOB Jubail, Saudi Arabia, up $22/tonne from its January contracts.

Aramco’s increase follows an announcement earlier in January that Qatar International Petroleum Marketing Co. Ltd (Tasweeq) and Abu Dhabi National Oil Co. (ADNOC) had raised their January sulphur prices by $23/tonne and $20/tonne, respectively.

IM’s price for sulphur, FOB Middle East, now stands at $175-195/tonne.

Market commentary

Prices for potash, phosphate and other agriminerals are yet to fully recover from the fallout between Uralkali and Belaruskali in August 2013 - a break which saw the termination of the joint Belarusian Potash Co. (BPC) marketing business and sent potash prices tumbling worldwide.

Prices for potash and phosphate saw slight rebounds last year before flattening out in Q4 at levels close to those seen before the BPC split, but were down on previously forecast growth targets.

Early market indications this year paint an unclear picture for fertiliser mineral prices in the coming months and Scotia Capital said that it retained a "cautious view" of the potash market for H1 2015.

Chemical minerals

Antimony

Prices for trioxide grade antimony ingot and finished antimony trioxide material are expected to fall further this year, as support leant to the market by China’s Fanya Metal Exchange is reined in.

IM’s prices for antimony trioxide (typically 99.5% Sb2O3) stand at $7,750-7,850/tonne (5-tonne lots) on a CIF Antwerp/Rotterdam basis and at $7,700-7,900/tonne (20-tonne lots) FOB China.

Trioxide grade ingot (99.65% min Sb2O3) stands at $8,300-8,600/tonne FOB China and $8,400-8,750/tonne CIF Rotterdam.

Prices for standard grade antimony were assessed as $8,200-8,500/tonne, according to Metal Bulletin (MB) in mid-January.

Market commentary

Chinese sources told IM that prices fell further at the end of last year following a volatile 12 months in 2014. This culminated in December, with many traders liquidating their positions in the antimony market and producers seeking to shift stocks to generate cash flow.

The Fanya Exchange had been buying up antimony metal to create a stockpile for its antimony trading contract, which was launched in March last year, but this purchasing spree began to tail off in the final quarter of 2014.

MB reported that the belief that production costs would provide a floor for antimony prices has now been largely expunged, with market observers warning that prices may drop into the $6,000s/tonne range.

If Fanya renews its purchasing drive later this year, this may stem the decline, however.

Energy minerals

Graphite

Sluggish consolidation in the Chinese flake graphite market did little to support prices in 2014 and this malaise looks likely continue through the first quarter of 2015, according to analysis by IM Data.

Prices for flake graphite, 94-97% C, +100 mesh-80 mesh (FCL, CIF European port) stand at $1,200-1,300/tonne, while -100 mesh material is assessed as $1,000-1,100/tonne.

In the vein graphite market, IM Data’s prices remained stable for a third consecutive year in 2014, in line with prices set by the Sri Lankan graphite commission. High purity 99.1% C grade +1 mesh material is priced at $2,800/tonne (FOB Sri Lanka) while 99.3% material is traded at $1,550/tonne (FOB Sri Lanka). 

Graphene

Spanish nano-materials group Graphenea announced in January that it has cut the price of its graphene products for 2015, thanks to improved yields and higher sales.

The company outlined that the price of its multilayer graphene films has dropped by around 30% on average. The price of Graphenea’s graphene on copper is now $319 for a 4 inch (10.16cm disc), while a 2.5 litre bottle of graphene oxide now costs $599 - around 40% cheaper than in 2014.

Rare earths

Rare earths prices remained unchanged in the second half of December and into January, despite soft trading activity, as China revealed that it intended to roll over its export taxes, currently levied at 15-25%, into the first quarter of 2015.

Prices for cerium oxide stand at $4.3-5.2/kg; dysprosium oxide is at $320-375/kg; europium oxide is at $700-780/kg; lanthanum oxide is at $4.3-5.2/kg; neodymium oxide is at $58-68/kg; praseodymium oxide stands at $110-120/kg; and samarium oxide prices stand at $4.8-6.5/kg.

Market commentary

In the graphite market, an abundance of Chinese flake supply is continuing to supress prices, despite a significant amount of capacity remaining offline.

While stricter government controls saw Chinese flake graphite production fall throughout 2014, emphasis has now shifted to the production of higher-value grades, moving the spherical graphite market in particular into severe over capacity and pulling down prices.

On the graphene front, meanwhile, CEO of Graphenea, Jesus de la Fuente, said that his company aimed to bring down the price of its graphene products every year for the foreseeable future. He added that it was not the price of graphene that prevented widespread commercial adoption of the material, but rather bottlenecks in the development of applications.

For rare earths, the announcement by China’s Ministry of Commerce (MOFCOM) on 31 December 2014 that it had axed its export quotas on the minerals (see p12) prompted fears that the market would become flooded with Chinese material. However export taxes are expected to remain in place until at least May this year, which should restrict shipments.

Market observers have also suggested that the imposition of higher resource taxes for rare earths, combined with the ongoing consolidation of China’s domestic rare earths industry will be used by the Chinese government to control the amount of material on the market.

On the pricing front, some reports suggested that prices had jumped slightly in mid-December as some buyers sought to make last minute purchases in case tariffs increased, but there was little evidence of a widespread firming in selling values in the face of stubbornly weak demand.

Sources told IM that a lack of certainty about the pricing and availability of Chinese rare earths is highly damaging for the industry, as downstream consumers cannot tolerate supply chain insecurity and will look to engineer out of their reliance on the elements.

Oilfield minerals

Barite

Prices for drilling and paint grade barite (barytes) remained steady into January, sources indicated to IM, although some market participants said that a reduction in freight rates is likely to lead to lower prices for oilfield material later in Q1.

Chinese paint grade barite prices (Chinese lump, FOB Fancheng, China) have been reported as $235-275/tonne.

Drilling grade barite prices are said to be flat with the end of last year, according to North American and Chinese sources, with values confirmed to be within IM’s current ranges.

Frac sand

Prices for frac sand could flatten at rates below those agreed between sand producers and oilfield services companies for 2015 as oil and gas prices continue to tank, market insiders have suggested to IM.

The price of US oil (West Texas Intermediate crude) fell below $50/barrel in early January, for the first time since April 2009, while Brent Crude dipped below $53/barrel. Both have now lost more than half their value since mid-2014, when prices were over $100/barrel.

Gas prices are also on the slide, with Citigroup Inc. cutting its forecasts this year by more than 20%. Daily Henry Hub gas prices will drop to an average of $2.70/million British thermal units (mBtu), down from a previous forecast of $3/mBtu, the bank said in January.

Prices for glass grade silica sand, which had also seen a slight uptick thanks to growing oilfield consumption and stable glass demand, have remained steady at $27-30/tonne (container, ex-works US), while foundry material (bulk, FOB DaNanag, Vietnam) is priced at $29-35/tonne.

Offers of sand for sale on trading boards suggest that frac sand prices are flat with the final quarter of last year, with market observers saying that the industry will need to wait and see how oil and gas prices shake out before making solid predictions on pricing for frac sand.

Market commentary

Lower freight rates for dry bulk material, which slumped to six-year lows in January according to consultancy IHS Maritime and reports by Hellenic Shipping News, are predicted to lead to softer prices in the near term, particularly in Asia, sources said.

In December, India-based sources said that prices for domestically produced paint and drilling grade material could jump by 30% once a fresh round of barite mining tenders is completed.

New contracts are expected to be awarded in the coming weeks, although no new barite is expected to be mined before February.

Meanwhile, the lack of available material from India and problems with the reliability of Chinese supply has put pressure on prices for Moroccan drilling grade barite, European sources said.

News that a new UK barite mine could be in the pipeline (see p13) could alleviate some demand pressure in Europe, however. In January, M-I, SWACO, part of oilfield services giant Schlumberger, announced plans for potential project at Duntanlich, north of Aberfeldy in Scotland, to open in 2017.

In frac sand markets, it seems likely that the shift to contracts over spot prices seen in the last year will keep selling prices up for producers in the near term.

"Many companies which have tied themselves into [frac sand supply] contracts for 2015 may come to regret being so hasty," one US source, who preferred not to be named, told IM.

They added that while oilfield companies will need the pre-purchased sand to service existing operations for the foreseeable future, they may find that they could have got better deals on the spot market come the middle of 2015.

Fracking industry consultants PacWest said last year that sand usage would increase by 20% each year in 2015 and 2016, but now believes that sand demand will stay flat as a result of the weaker oil price.

Samir Nangia, a principal of PacWest, told the Wall Street Journal that planned new silica sand mines could add an additional 10% to existing frac sand production capacity, which could create a glut and pull down prices.

According to the oilfield materials trading website Downhole Trader, the combination of lower oil prices and the usual seasonal pullback in oilfield activity are likely 

to be jointly responsible for the fall in fracking activity in North America.

"Our desk has seen a slowdown in purchasing this time of year, while pricing requests become more frequent due to companies putting a pencil to new project analysis. It is likely that both the winter slowdown and the oil prices are influencing the market," the website stated in December.

Sand miners remain upbeat, however, pointing out that for the next year at least, much of their output has already been sold with robust margins.

At the end of December, the Freedonia Group Inc. released a report stating that silica sand demand is expected to grow by 5.5% per annum to reach 291m tonnes in2018, driven by growth in glass, foundry and building products markets as well as fracking.

Full information on all IM’s prices can be found on the IM Prices Database online at www.indmin.com/pricesdatabase. For fluorspar and graphite prices, please visit the IM Data mineral tracker pages at www.indmin.com/fluorspar and www.indmin.com/graphite.