Currency fluctuations crunch export earnings

By Laura Syrett
Published: Friday, 20 March 2015

Global soda ash market in for a positive 2015; zircon prices expected to remain flat in near term; currency depreciation hits phosphate and TiO2.

Currency fluctuations played havoc with mineral prices in March. City of London analysts have predicted that the euro could slip to a one-to-one exchange rate with the US dollar, following the commencement of the European Central Bank’s (ECB) quantitative easing programme.

The euro was valued at €1.05 against the dollar in mid-March – the first time it had ducked under the €1.06/$1 mark since April 2003. This has made European mineral exports more attractive to purchasers buying in dollar denominated contracts but is eating into the export margins of some producers, although others have welcomed the lower costs and increased shipments prompted by the exchange rate shift.

The fluctuation in European currencies, together with the slumping price of oil and iron ore, is creating uncertainty in the markets, with fears mounting that commodities have entered a period of unstoppable decline.

At the Global Mining Finance Spring Conference held in London in March, Jeremy Wrathall, head of global natural resources at specialist commodities bank Investec, blamed a failure to appreciate the reality of China’s economic situation as part of the reason for the turmoil.

"It is important to realise [that lower commodity prices] are not just to do with oversupply, they are a factor of demand as well," he said.

He pointed out that currency depreciation in many large mining countries, including Australia and South Africa, had thrown a lifeline to mineral producers and kept capacity online which realistically ought to drop out of the market.

Wrathall said that, in his opinion, the view that China would reach "peak steel" by 2020 was over-optimistic. "It is my belief that China has already reached peak steel; capacity is starting to come offline," he said.

In industrial mineral markets, currency depreciation affected phosphate, titanium dioxide (TiO2) and graphite, with industry sources reporting pressure to raise list prices in order to compensate for lower returns on contracts.

In the refractory minerals segment, industry participants are widely expecting to see lower prices for bauxite, alumina, magnesia and graphite in the coming months in response to flagging demand from the steel industry, but there has so far been little concrete evidence of suppliers officially reducing offers.

Some positivity has been seen in the soda ash market, meanwhile, where prices are expected to be strong this year, while zircon producers have taken some comfort from predictions of flat pricing for the foreseeable future.

Agriminerals – currency crunches phosphate

Phosphate

European phosphate supplier Prayon Group said in mid-March that it would raise the price of its phosphate products worldwide in an effort to stem losses flowing from the falling value of the euro.

The Belgium-based company, which is jointly owned by Morocco’s Office Cherifien des Phosphates (OCP) and the Wallonia Regional Investment Co. (SRIW), said that the increases would be around €100/tonne ($105/tonne*) P2O5 and would take effect from 1 April.

Potash

North American potash cartel Canpotex Ltd was reported to be angling for an 8% increase in the price of its potash supply contract with China’s Sinofert Holdings Ltd at the end of February.

The increase, which equates to around $25/tonne potash, was mooted by Jim Prokopanko, CEO of US-based agrimineral producer The Mosaic Co. and reported by Reuters.

Prokopanko said that Sinofert is looking to pay the same $305/tonne rate they agreed with Canpotex last year – a heavily discounted price agreed in January 2014 in the wake of the potash market collapse, caused by the breakup of the Belarusian Potash Co. (BPC) in August 2013.

Potash prices currently stand at $320-410/tonne muriate of potash (standard, bulk) FOB Vancouver — where Canpotex owns a number of nearby West Coast export facilities and port land — according to the IM Prices Database.

Market commentary

Phosphate prices had seen some recovery last year after falling steeply in the final quarter of 2013 following ructions in the global fertiliser market, led by the breakup of the BPC in August 2013.

However, the rampant US dollar and the sliding value of the euro have left companies selling the fertiliser minerals in euros at a disadvantage in international markets, with the currency’s devaluation eroding margins.

Potash similarly saw a price revival in 2015, but large buyers are keen to take advantage of the present fragile state of the market to negotiate cheap deals. "China’s holding firm," Mosaic’s Prokopanko told delegates at a Bank of America Merrill Lynch investor confidence in Fort Lauderdale, Florida.

Canpotex is jointly held by Mosaic and Canada-based potash producers, PotashCorp. of Saskatchewan and Agrium Inc. Prokopanko said that, as a shareholder in Canpotex, his advice to the marketing body was to stand its ground over its price offer.

Prokopanko said that Canpotex’s potash is already moving smoothly to other buyers and expects Sinofert to agree contracts with its rivals before it seals an agreement with the North American firm. He anticipated that Canpotex would sign a deal around the end of March or early April.

Chemical minerals – soda ash strong

Antimony

Prices for antimony trioxide in China fell below the $7,000/tonne mark in mid-March, sources told IM.

The price of antimony trioxide (typically 99.5% Sb2O3, 20-tonne lots) has fell to $6,950-7,050/tonne on an FOB China basis, down from $7,100-7,300/tonne at the beginning of March.

CIF Antwerp/Rotterdam prices have also fallen and stand at $7,000-7,100/tonne, compared with $7,200-7,500/tonne, previously.

Prices for trioxide grade antimony ingot (99.65% min Sb2O3) remain unchanged, meanwhile, at $7,800-8,200/tonne, FOB China, and $7,900-8,300/tonne CIF Rotterdam.

Standard grade antimony ingot prices currently stand at $8,100-8,400/tonne, according to Metal Bulletin.

Bromine

Bromine prices are not expected to recover from their present depressed levels in 2015, according to outlooks from some of the industry’s major suppliers.

IM’s prices for bromine (purified, bulk, 99.95% Br, domestic, tonne lot) currently stand at $1.55-1.70/lb ($3.41-3.74/kg).

Soda ash

Prices for natural and synthetic soda ash rose in all major markets across the world last year and are set to remain robust in 2015.

According to one source, buyers of soda ash for glass – the mineral’s largest end market – have paid around 5-10% more for material over the last year, on average. Smaller chemicals companies have reportedly faced increases of up to 20% in the price of soda ash, but overall the increase has been around 10% on a weighted average basis, according to industry analysts.

One North American glass market participant said that large
volume industry buyers were expecting to pay around $5-7/tonne more for soda ash in North America this year, although smaller buyers could be looking at hikes of up to $20/tonne.

IM’s prices for synthetic soda ash (dense and light, small parcels, delivered Europe) currently stand at €215-235/tonne ($238-260/tonne).

Indian material (synthetic, imported, dense) is priced at $240-290/tonne, while ex-works India prices (dense and light, domestic) stand at $290-310/tonne.

In the US, prices for natural soda ash (delivered, Wyoming,) stand at $200-230/tonne.

FOB China prices for synthetic material (dense and light) are $190-205/tonne.

Market commentary

In the beleaguered antimony market, antimony prices were boosted in the second half of February when supply tightened as a result of the Chinese Spring Festival holiday. Ingot values have remained higher than they were at the start of the year, although prices are still running close to or even below production costs for many producers.

One source told IM that the smuggling of antimony ingot from China into Vietnam ceased during the Spring Festival, which helped support the market, but that the supply of antimony trioxide has remained unchanged and prices are struggling in the wake of low demand.

Meanwhile, Chinese bromine and salt producer Gulf Resources Inc. in March reported a 17% overall decline in net income in 2014 to $17.9m, down from earnings of $21m the previous year, blaming weakness in bromine and salt prices.

"Overall, we expect that the Chinese economy and bromine demand will remain relatively soft [in 2015]," Gulf said in its earnings release.

In February, US-based speciality chemical makers Albemarle Corp. and Chemtura Corp. both reported bromine pricing pressure, thanks to the further decline in flame retardant demand for flexible foam applications and furniture. 

Craig Rogerson, Chemtura’s CEO, described the company’s margins on bromine as "lousy", but said that the company expected to maintain these. He added that the strikes at Israel Chemicals Ltd’s (ICL) bromine facilities in Israel could support prices to some extent if they last long enough to take capacity out of the market, but noted that the likely short duration of the strikes would prevent this.

"We are not relying upon a recovery in bromine this year but will clearly exploit any recovery if it does occur," Rogerson said.

For soda ash, Turkey was a hot spot for demand last year, with strong consumption in its container and flat glass markets.

Soda ash for detergents also saw growth in Asia, although this market has been slowing in Europe and North America.

According to one source, South East Asian soda ash producers have not increased their prices, meaning that the American National Soda Ash Corp. (ANSAC), which is a major exporter to the region, has not been able to introduce higher prices here as it has in other areas.

The surge in popularity of domestically brewed craft beers in the US is also expected to support the price of the glass mineral this year.

US craft beer consumption has witnessed rapid growth in the last decade and craft breweries more than tripled their market share, from 2.5% by volume in 2003 to 7.8% in 2013, the most recent year for which data is available from the Boulder, Colorado-based Brewers Association.

Although overall beer consumption in the country is down by around 2%, the shift in drinkers’ preferences to craft beverages served in glass bottles rather than mass produced canned beers is helping soda ash demand.

According to the source, the conversion from glass containers to plastic and cans for packaging, which dented soda ash consumption in the last two decades, has now largely bottomed out.

Mineral sands’ decline moderates

TiO2

Prices for TiO2 in Asia were expected to be pushed up by recent increases in selling values for the pigment in Europe, sources told IM at the beginning of March.

TiO2 producers have reported some running down of inventories and said that the dip in production over the Chinese New Year period in mid-February should buffer the price of material originating from China by up to $100/tonne.

Ukraine-based Crimea Titan
recently raised the price of its TiO2 pigment by Ukrainian hryvnia (Hrn) 14,500-16,000/tonne ($617-681/tonne), citing the devaluation of the hyrvnia against the dollar as the reason for the increase.

IM’s prices for TiO2 pigment (high quality, bulk) stand at $2,500-2,900/tonne on a CFR Asia basis and €2,200-2,500/tonne ($2,389-2,715/tonne) on a CIF Northern Europe basis, but FOB China prices are reported to be in the $1,800-2,000/tonne range.

Zircon

Prices for zircon are expected to remain stable for the foreseeable future, market sources have told IM.

Sources in Australia and Asia both reported flat pricing at the end of February, thanks to stability in the Chinese market.

IM’s prices for premium grade zircon (66.5% ZrO2, bulk) stand at $1,050-1,150/tonne on an FOB Australia basis; $1,050-1,450/tonne FOB US; and at $1,050-1,150/tonne FOB China.

Prices for standard grade zircon (65.5% ZrO2, bulk) stand at $1,000-1,050/tonne on an FOB Australia basis; $950-1,150/tonne FOB US; and $1,080-1,100/tonne FOB China.

Market commentary

The positive effect of the shift in supply on TiO2 prices has been curtailed by competitive offers from Chinese pigment suppliers.

Some of China’s largest producers have recently pointed to the low price of ilmenite as boosting their margins in the last year. Many of China’s TiO2 manufacturers have increased production to take advantage of the price differential and have begun exporting more material to overseas customers, injecting a new competitive impetus into the global pigments market.

Mineral sands producers have said they expect to see some improvement in feedstock prices within the next year, assuming that miners exercise discipline over output volumes while the supply-demand balance remains fragile.

Analysts have told IM that they do not expect ilmenite and rutile prices to recover before 2016.

For zircon, participants active in Australian and Asian mineral sands markets said that prices remain within IM’s current ranges and are unlikely to move in the near term.

"It seems zircon will remain flat for a while yet," one Australia-based source said. "No doubt the cycle will swing upwards again, but there is no sign of significant price [movements] as yet," the source added.

Refractory minerals - magnesia firm for now

Magnesia

Prices for fused magnesia have remained stable so far this year, despite expectations of a drop in the market based on downstream weakness in the steel refractories industry.

Prices for higher grade fused magnesias have been particularly resilient, market sources said.
IM’s prices for fused magnesia (98% MgO, lump) stand at $980-1,050/tonne on an FOB China basis.

Market commentary

Industry sources said that while there have been no official price discounts for magnesia so far this year, producers are preparing for lower prices later in the year as demand conditions force the market down.

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.

*Conversions made March 2015