Iron oxide: build, or it won’t come

The main end markets for iron oxide are concrete and other construction materials, coatings, paints and foundries. Like other pigments for which construction is a major demand driver, consumption is tied to GDP and building and infrastructure spending, which has seen a decline in the last few years owing to weakness in the global economy and excessive housing capacity in China, where demand has not been able to keep pace with the scale of new building. This has hit not only iron oxide, but other pigment minerals like titanium dioxide (TiO₂), rutile and ilmenite. 

Although construction growth in some regions has slowed, spending on new building projects in Asia is still expanding at a faster pace than the rest of the world. The latest data and forecasts also indicate a rebound in the US construction sector, which is anticipated to continue to lead many of the world’s mature economies in economic growth.

Process flow sheet for synthetic iron oxide

Annual production of iron oxide is estimated at around 1.2-1.3m tpa, with synthetic iron oxide production accounting for around 1m tpa.

Natural iron oxide is derived from a number of sources, depending on the colour of the pigment. Hematite is a red iron oxide mineral; limonites vary from yellow to brown; while magnetite is a black iron oxide. 

Synthetic iron oxide on the other hand is produced from basic chemicals using a number of different methods, such as thermal decomposition of iron salts or compounds; precipitation of iron salts and subsequent oxidation; and the reduction of organic compounds by iron.

Iron oxide pigments are the most commonly used natural pigment after milling as they are colour-stable and low-cost. Both synthetic and natural iron oxide pigments can be used in the same way, whereas some organic pigments fade over time from sunlight exposure. While synthetic iron oxide is a more expensive product, it is generally of a higher quality than its natural counterpart.

"Higher grade synthetics are finer, higher quality and purer - usually, natural [pigments] are only in the range of 75-85% of iron oxide and the rest is other impurities," Axel Schneider, CEO of Cathay Industries Europe, told IM. 

Schneider explained that though both synthetic and natural iron oxides can overlap in certain applications, the choice of which will depend on the end product.

"In industrial paint applications for example, there can be some natural used, but the major share in the coatings industry will certainly be synthetic. There is no real competition between the two, though. If somebody can use the cheaper natural iron oxide then they will," Schneider said. 

Cathay Industries is one of the world’s largest producers of synthetic iron oxide with a production capacity currently being increased to over 200,000 tpa in its facilities around the world. Most global production takes place in Europe, the US and China. Last year, Cathay started adding a Chinese production plant to allow it to meet increasing demand as its market share expands. 

The world’s largest producer remains Germany-based Lanxess, with a production capacity of around 375,000 tpa synthetic iron oxide. Other major players include US-headquartered Rockwood (now owned by Huntsman Corp.) and German chemicals giant BASF (although BASF only converts iron oxide into transparent oxides and is not an iron oxide manufacturer).

One new natural iron oxide producer is looking to compete with synthetic iron oxides on both quality and price.

US-based Applied Minerals began producing its Amiron iron oxide product towards the end of 2014 from the company’s Dragon Mine in Utah. Its production plant has a total capacity of around 40,000 tpa iron oxide, depending on the type of product being manufactured. 

According to Andre Zeitoun, CEO of Applied Minerals, the iron oxide produced at the mine is of a higher quality than most natural iron oxides at 96% purity. Typical impurities at the deposit consist mainly of halloysite, which Zeitoun said does not interfere with the colour of iron oxide owing to its transparency. 

"We’re offering a very competitive price to comparable transparent iron oxide. We are delivering competitive performance from a natural source at competitive price points. That’s why we look at synthetic producers as competitors," he told IM.

"There is interest in being able to use high performance natural product," Zeitoun said, adding that other natural iron oxide producers may have consistency issues owing to impurities at individual deposits, while the synthetic iron oxide industry has faced environmental criticism. 

The company is targeting the woodstains market in particular, in which it says there are very few transparent iron oxide competitors. Zeitoun is confident that Applied Minerals will be able to gain market share owing to the quality of its product and says that the company has already received interest from potential customers in Asia, Europe and the US.

"The US is a big importer - we’ve had a really strong reception from companies that have traditionally bought from Asia and they are relieved to have a reliable US source," Zeitoun told IM.

Construction spending by country 2013 (US$)

Construction spending growth 2014-19 (%per annum)

Environmental regulation

In order to meet increasing customer demand in China, Cathay Industries completed construction of its synthetic iron oxide production plant in Tongling, China, with an initial capacity of 60,000 tpa. 

The plant was fitted with state-of-the-art production processes to optimise energy use and produce lower carbon emissions to produce pigments, which the company says is "in line with the high quality product of Cathay Industries and at the same time reduce emissions to the environment to the lowest level ever seen in the history of iron oxide manufacturing in China."

According to the company’s managing director, Steven Spackman, Cathay saw the plant as an opportunity to invest in newer, cleaner technologies.

"Environmental regulations have always played a significant part in the global chemical manufacturing space. In China in particular over the past five years there has been a concerted effort by governments to improve environmental compliance with all manufacturing sites in all areas of the chemical, petrochemical and related industries," Spackman told IM.

He said that the pressure on suppliers from increased environmental regulations in China is no different to any other global compliance issues. "Whether manufacturing is done in China or in other countries, the environmental compliance issues are consistent. I think that those like Cathay who recognise the importance will continue to be dominant in the market."

He added that there are some plants that continue to disregard environmental standards in China and several global end users are still choosing to continue to work with non-compliant manufacturers.

"There have been plant closures in China and other regions because of environmental regulation and we don’t see the opportunity for those plants to start up again due to the very heavy investment required to bring the plants up to standard," Spackman said.

Softening consumption in the wake of weaker GDP has led some iron oxide consumers to maintain margins, which partly explains the preference for environmentally dubious suppliers, but Spackman believes that the industry is underpinned by strong fundamentals linked to growing populations, which should help the industry adjust to the cost of tighter regulation.

"Demand in the past five-to-seven years has been driven by the global economic climate and slower than expected infrastructure spending by governments around the world. We see demand in South East Asia and Africa as strong and developing over the next few years, while we also see more consistent growth in more mature markets, similar to the conditions before the global financial crisis," Spackman told IM.

Main construction activities in 2013, Europe

Asia still leading growth

Construction growth in Asia has ebbed substantially, however, when compared to the rest of the world it is still well above par. 

In 2013, Asia accounted for 44% of total global construction spending according to AECOM’s latest Asian construction outlook, published in August 2014. China was the largest market - spending almost $1.8 trillion on building projects - followed by Japan, India, Indonesia and Korea. 

"Despite the slowdown, future growth prospects are still promising," AECON said. "Construction spending is forecast to grow at rates above the regional average of 4.4% in China, India, Vietnam, Bangladesh and Thailand over the next five years." 

In the short term, most construction growth is expected from Indonesia and China, while in the long term, stronger construction spending is expected from China, India, Vietnam and Indonesia until at least the end of the decade. 

However, the AECOM warns that there is an increasing downside risk shown in its forecasts, based on the level of credit availability in the region. 

"In China, particularly, debt levels are unprecedented and the risk of a serious downturn due to credit withdraw is growing. If growth in China were to stall, there would likely be serious implications for both the region and global economies," AECOM outlined. 

"Overall, our review suggests that the growth prospects, profitability, openness and attractiveness of construction markets in Asia are slightly less optimistic when compared to the results from our previous publication in May 2013. Although, despite this, the future prospects still appear broadly positive in most locations," it added. 

Large project pipeline in UAE 

According to analysts at BMI, construction growth in the United Arab Emirates (UAE) is predicted at a rate of 5.8% over 2015, driven by activity in both the residential and non-residential building sectors. The country already has a large project pipeline and lower oil prices have, as of yet, done little to curtail new ventures in the Middle East building market. 

BMI also predicts that growth in the UAE’s construction sector will average at a rate of 6.2% between 2015 and 2019, though this is expected to moderate to around 2.4% between 2020 and 2023. 

Weak outlook for Europe 

While construction activity in the Middle East and Asia continues to grow - albeit at a slower pace - and the sector has rebounded in the US, the outlook for Europe is less promising. 

According to Goldman Sachs, the economic growth outlook in Europe looks vulnerable for 2015, with Goldman’s chief European economist for global investment research, Huw Pill, predicting annualised growth rates of just 1%.

Supporting factors include a decline in oil prices and a weakening euro exchange rate.

"Confidence in Europe remains fragile, particularly with regard to capital expenditure in the corporate sector, in large part because a lot of uncertainties remain regarding how the longer term institutional ungovernance problems in Europe are going to be resolved," Pill said. 

In 2015, Spain and Germany are expected to overperform in terms of growth, while France and Italy are predicted to underperform. 

"I think it will be really difficult to get excited about the growth outlook in Europe in 2015 and 2016 but we do expect a powerful policy response to prevent the downside risk of deflation emerging and through time - through a slow healing process - improved reforms, improved governance and ultimately a revival of confidence Europe can get back to a more self-sustained growth over the medium term," Pill concluded. 

More positively, New Zealand-based environmentally friendly builders Ecoconstruct said in its 2015 outlook that although recent forecasts indicate a slower return to growth than previously predicted in 2014, the organisation is anticipating 2.1% growth in construction in Europe in 2015 and a 2.2% growth rate in 2016-17. 

Construction recovery has been gaining momentum in the UK and in Northern European countries, however Euroconstruct added that an economic impasse has set in in the Eurozone area.

"Output, wages and prices are stagnating and levels of unemployment are at record highs," Euroconstruct said. "Eastern European economies, on the other hand, have returned to robust growth after a sharp slowdown in 2012-13."

Like Goldman Sachs, Euroconstruct forecasts that economic growth in Europe will be weak owing to the fragile labour market, tight credit, public accounts correction and concerns over the risk of deflation.

"In this weak but slowly improving economic scenario, the new outlook for construction activity in Europe indicates that sectorial production bottomed out in 2013 and stabilised at a very modest level in 2014," Euroconstruct outlined. "Thus this new phase can be described as one of modest recovery, and of low productive levels, even if the sectorial growth rates, after some years, will once again overtake the pace of the economy."

US growth in residential construction

According to figures from Dodge Data & Analytics, construction starts in the US could increase by 9% year-on-year, reaching $612bn in 2015 following steady growth in 2015. 

Dodge anticipates growth of around 9% in multifamily housing in 2015, while the commercial building sector is increasing at a steady pace and could grow by up to 19% this year. 

Prices

According to Cathay’s Schneider, a significant challenge faced by iron oxide producers is fluctuation of currencies. 

"The developments of the last weeks and months will force all importers to raise sales prices in Europe. The demand in Europe is larger than the capacities of the European manufacturers, so it will certainly lead to an overall price rise," he told IM.

According to the IM prices database, brown type iron oxide prices (FOB China, $/tonne) stand at around $1015-1080/tonne although some manufacturers have reported ranges of 1,100-1200/tonne, depending on quality.

"It really depends on the quality," one pricing source told IM. "For red iron oxide from china we can see product at below $1,400/tonne but also at higher than $1,600."

Outlook

Leading iron oxide producer Lanxess also predicted a slower overall pace of growth in the construction industry globally in its last set of financial results, published in the fourth quarter of 2014.

"Despite somewhat weaker growth, the Chinese construction industry will likely develop in line with expectations. We believe the aforementioned crises will result in slightly reduced growth in EMEA," Lanxness outlined.

"For the US, construction industry, we predict a continued good development of residential construction but weaker development of infrastructure investment in non-residential construction than originally presumed. We therefore now expect slightly lower growth overall for the US," the company said. 

Although there are regional variances in terms of construction spending, Schneider expects slow global growth in the construction sector, and in turn, in iron oxide demand, with global consumption expected to be at a slow and steady rate of between 1-3%, at least for the next few years.

"Quickly growing markets are the cosmetic market and battery applications, but compared to the large consumption of the construction industry, even if these markets grow by 100%, they are so small in scale that you probably wouldn’t even notice the change," he told IM. 

 "The construction market is growing on a quite mature basis in the range of about 2-3% per year, because how much growth can you really expect at a time when the governments have to save their money. Yes there is some growth but not much," Schneider concluded.