China’s growing downstream dominance leads fluorspar recovery

By Shruti Salwan
Published: Thursday, 28 May 2015

While infrastructure developments drive demand and the impact of a transition to HFOs remains distant, the price outlook is positive for Q2 2015.

China's fluorochemical expansion remains at the forefront of the country’s industrial rebound, despite over capacities in the sector, as infrastructural developments are likely to boost acid grade fluorspar (acidspar) consumption rates in the country. 

Soaring seasonal temperatures will prompt demand for coolants and refrigerants, generating demand for fluorochemicals. 

Industry sources told IM that rapid industrialisation, increased disposable income and urbanisation will substantiate consumption growth rates of 8-10% in 2015, further fuelled by an increase in the production of automobiles and heating, ventilation and air conditioning (HVAC) equipment. 

This growth will further push up consumption rates for hydrofluorocarbons (HFC) and hydrofluoroolefin (HFO) chemicals in the country, which are forecast to fuel consumption of refrigerants, solvents and fluoropolymers.

Although restrictions on the production of hydrochlorofluorocarbons (HCFC) took some capacity off-stream in 2014 – with production falling below 60% of capacity in China – structural issues continue to threaten producers’ profit margins. 

Industry sources have suggested that an anticipated 10% production cut in HCFCs in developing countries will condense existing stockpiles, however few signs of a significant upturn in demand are likely to be seen in the short term. 

China’s AlF3 capacities by province 

News 20 

Source: IM

Transition to HFOs 

While regulations and environmental concerns have renewed the focus on next-generation chemicals, namely HFO alternatives, following the successful suppression of chlorofluorocarbon (CFC) and HCFC emissions, these will have limited impact on acidspar consumption. 

Industry sources told IM that the transition to HFOs will be a gradual process as negotiations at the United Nations (UN) are yet to be concluded, and that these will largely replace HFCs in mobile air conditioning equipment. 

However, during the process of phasing these out, demand for acidspar is unlikely to be influenced as hydrofluoric (HF) acid continues to remain the feedstock for these chemicals, especially HFC134A consumed in the air conditioning segment. 

The effects of an extension of fluorocarbon emission legislation will therefore not have a major impact on demand for acidspar. 

Substantial growth in the fluorocarbon industry approaching 2020 can be expected, owing to environmental targets, which will see diversification in acidspar demand and is likely to prove beneficial for producers. 

The growth of secondary end markets will further fuel demand in the aluminium fluoride (AlF3) sector, which accounts for nearly 27% of acidspar demand and is expected to expand by 30% by 2020. 

Increasing AlF3 Exports 

China’s AlF3 exports registered a rise of 12% year-on-year (y-o-y) in 2014, hitting 164,830 tonnes, the highest recorded tonnages in the last decade. 

While the trend supports downstream expansion plans, China’s AlF3 industry, struggling with excessive capacities, remains the preferred source for international aluminium producers looking for cheaper material.

Last year, a number of Chinese AlF3 producers were reported to have been operating at 50% capacity, with miners trying to shift excessive stockpiles approaching the end of 2014.

High inventory backlogs continued to put downward pressure on AlF3 prices, with only marginal increases seen in Q3 2014. The material is currently traded within the range of $1,000-$1,100/tonne. 

Supply chain congestion also compelled many small producers to either temporarily close operations or switch to alternative production with high profit margins, subsequently condensing acidspar consumption rates.  

Nevertheless, higher exports have relieved excess downstream supplies, which is likely to encourage the resumption of production, boosting demand for acidspar in China. 

China’s downstream expansion plans will further raise fluorspar demand in the medium term, with new contracts leading to the removal of Chinese product from international markets.

These factors, alongside China’s growing aluminium output, which increased by 14% to a record 28.3m tonnes in 2014, will see a surge in domestic operations, benefitting upstream demand. 

Price outlook positive

Fluorspar suppliers have reported an upturn in enquiries for acidspar which could fuel minor price increases in Q2 2015. 

Producers have started receiving fresh orders as buyers gear up for seasonal restocking, which has introduced some positive sentiment in the market and provided greater leverage to sellers in the short term.

Industry sources told IM that some producers are operating in a spot market, producing orders negotiated quarterly to shield themselves from losses incurred through limited industrial demand.