Glut feeling

By Laura Syrett
Published: Tuesday, 24 February 2015

Laura Syrett, Acting Editor, comments on the latest activity in the global commodities industry, where the immediate picture does not look promising.

The global commodities industry is playing a waiting game. Miners need a sustained uptick in demand to eat far enough into inventories to create a realistic opening for the new capacity many invested in so heavily during the boom years. 

Mineral and metal prices also need to recover from their present state of depression in order for new production lines to be run at a profit, rather than as just another negative cash flow drag on already strained budgets.

For bulk and base commodities like iron ore, bauxite, copper and nickel, the immediate picture does not look promising. 

As Richard Blunt, a partner specialising in M&A and project development at mining law firm Baker & McKenzie told IM at the 2015 Mining Indaba conference (see pp8-9) in Cape Town recently, "there isn’t another China to come on stream". In other words, the big eater at the commodities table has taken its fill and will be moderating its intake according to its stomach, rather than its eyes, from now on and nobody else has quite the same appetite for the ever increasing spread.

For refractory minerals like alumina and magnesia, this does not bode well either. Full year results released by Austrian refractories and magnesia producer RHI AG (pp21-22) illustrated a tough year for an industry reliant on steel and cement manufacturing and has forced the company to cut its fused magnesia (FM) and caustic calcined magnesia (CCM) capacities in the face of weak market conditions.

Even in India, which had been protected, to an extent, from the industry’s broader problems, refractories producers are starting to feel the pinch, as the latest quarterly statements from IFGL and Orient Refractories show.

Similarly, pigment minerals, whose consumption is generally correlated to GDP, are in a tight spot. As Kasia Patel, Deputy Editor, finds, seemingly relentless downward pressure on titanium dioxide (TiO2) prices and immovable stockpiles of feedstock minerals has forced manufacturer Cristal Global to slash jobs (p20), following in the wake of US rival Huntsman Corp. and Irish mineral sands miner Kenmare, which have both cut workforces and production capacity in recent months.

For iron oxide pigments which are mainly used in the construction industry, a slowdown in building activity is creating cause for concern, although it is also spurring innovation in pigment production to create new price and performance competitive products (pp49-51).

comment 

A slowdown in consumption and rising capacity for
mineral commodities paints a bleak picture for companies
leveraged on new production investment.
Peter Craven 

The Tesla effect

Although IM is privileged to cover speciality and niche markets that are often a step removed from the direct influence of macro-economic forces, the same principles of supply and demand still apply.

This is worrying investors in the energy minerals sector, particularly those interested in lithium and graphite, which last year received an adrenaline shot from the news that California, US-based electric vehicle (EV) maker Tesla Motors plans to build a lithium-ion Gigafactory in Nevada.

The beginning of March will mark a year since Tesla made its announcement, which was swooped upon by junior graphite and lithium miners as evidence that significant demand creation was a realistic, if not dead certain, prospect.

IM Reporter, Josie Shillito, has taken a look at the so-called "the Tesla effect" has had on the battery minerals supply industry in the last twelve months (pp31-32). Here, she highlights concerns of analysts that extra lithium capacity, in particular, is waiting in the wings for any upsurge in demand – a shift that could put new producers out of the running before they even begin.

A look at prices for battery grade lithium and graphite (p59) shows that the flurry of excitement created by Tesla was only lightly reflected in the numbers and has since levelled out again in line with the prevailing strong supply and soft demand situation.

Rare earths, meanwhile, have been more or less bypassed by the Tesla enthusiasm. Although rare earths are used to make high strength magnets for EV motors, Tesla’s particular technology does not require them and so far, market penetration of other EV models from more established automotive brands have yet to catch the public’s imagination.

However, it is widely agreed that action needs to be taken to safeguard access to rare earths for manufacturers of everything from smartphones to defence systems based outside the world’s monopoly producer, China. In this issue, contributors James Kennedy and John Kutsch consider how a relaxation of the rules governing thorium-containing materials and a renaissance in the nuclear power sector could help to achieve this goal (pp37-40).

Grow your own

In the agriminerals sector, meanwhile, the stats are rather more encouraging. The indisputable metric underpinning this industry is that the world’s population is growing rapidly and millions of people continue to face starvation.

Demand for fertiliser minerals therefore looks set to grow solidly for the foreseeable future, as contributor Frank Hart discusses in his article on the role of mineral nutrients in agriculture (pp45-49).

IM Reporter James Sean Dickson has also delved into this industry, with a focus on new types of fertilisers being specially developed by agricultural product specialists, which see an opportunity in tailoring nutrient products to different soils and crop types.

Laura Syrett

Acting Editor*

*Siobhan Lismore-Scott is on maternity leave

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