Kaolin’s shifting end markets

By Kasia Patel
Published: Thursday, 22 October 2015

Paper, the largest consumer of kaolin, has seen declining demand in recent years in developing nations, owing to the increase of e-media. However, there are still growth opportunities for the clay mineral in a number of consuming industries, Kasia Patel, North American Editor, finds.

The kaolin industry has undergone a number of changes in the past few years as the mineral’s use in paper has declined to make way for the increased uptake of electronic devices in developed nations, while kaolin production continues to undergo ownership consolidation. 

According to BASF, the Germany-headquartered chemicals multinational which produces kaolin products, manufacturers are facing a number of challenges as changing trends in usage and low oil prices have impacted consumption.

Coating and filler pigment for P&B, 2013. 
Total 48m tonnes.

Kaolin1  

Source: Ian Wilson 

Several key markets for kaolin are experiencing declining demand, including graphical paper, ceramic proppants and refractories," a spokesperson for BASF told IM

"The market for graphical paper continues to decline as e-media becomes ever more popular. Kaolin, whether used as a filler or as a coating pigment in graphical paper, accompanies
this decline."

As a result, a number of companies, including BASF, have decided to move away from producing kaolin for the paper industry and refocus their attentions in more profitable areas. Earlier this year, BASF announced that it was offloading its paper hydrous kaolin (PHK) division to rival kaolin producer, France-based Imerys SA. The divestment included the company’s milling facility in Georgia, US, its patents, brands, customer relationships
and contracts.

While the deal remains subject to approval by the relevant merger control authorities, BASF told IM that it now expects the transaction to close during the fourth quarter of 2015. It added, however, that the sale does not signal a total move away from the paper business for BASF.

"BASF continues to be a leading global supplier to the paper industry and offers a wide range of products for paper manufacturing and coating," the company told IM.

The restructuring, BASF said, was implemented instead to focus on key growth markets for kaolin, such as wet-end chemicals, calcined kaolin for all paper applications and hydrous kaolin for thermal paper. 

According to BASF, non-paper applications tend to expand at close to GDP levels and these are the areas that are likely to show key growth in the future, in addition to hydrous and calcined kaolin for industrial applications as well as kaolin for process catalysts, although the company will continue to provide paper end markets with products such as calcined kaolin.

With the PHK business, Imerys will be adding several hundred thousand tonnes a year of kaolin production to its existing capacity, which translates into around €100m ($113m*) extra revenue. In 2014, Imerys’ kaolin revenue totalled €480m for the year.

According to UK-based industry consultant Ian Wilson, BASF’s divestment to Imerys is indicative of continued industry consolidation in addition to the limited growth displayed by the paper industry. He is also more conclusive about what the decision means for BASF’s involvement in paper chemicals.

"They are keeping their calcined clay division, but Imerys is very much in the driving seat here," Wilson told IM. "For BASF though, this does signify a total move away from paper and this is a very significant development."

"The important thing here is that consolidation is still happening," Wilson added. 

Paper and packaging

Kaolin, often referred to as China clay, is an almost white mineral with a fine particle size and dispersion that makes it ideal for use as a pigment. High quality mineral deposits are located in the Southeast US, Brazil and the UK. 

The paper industry uses kaolin as both a coating to enhance brightness, smoothness and printability and as a filler to reduce the need for pulp, which cuts the overall cost of the finished product. 

According to US Geological Survey (USGS) figures, in 2014, 47% of kaolin produced in the US was consumed by the paper industry, with the remaining 53% accounted for by other uses, including ceramic proppants for the fracking industry, which the USGS says have become a significant end market for the mineral – although this could contract in 2015, in line with lower
oil prices. 

Of the estimated 5.8m tonnes kaolin produced in the US, approximately 2.6m tonnes were exported for use in paper, as well as for consumption in ceramics and for use in fillers and extenders in paint, plastic and rubber products.

The ceramic sector accounts for a large proportion of kaolin consumption globally. The qualities of kaolin that make it desirable for use in ceramics are its white colour, gloss and hardness.

"Kaolin in ceramics remains very important," said Wilson. "Though most ceramic production takes place in Asia – who knows? Maybe
ceramics will grow to overtake the paper market," he speculated. 

A greater proportion of kaolin supply is also going into packaging, which is offsetting some of the decline in demand from paper markets.

"Growth is still being seen on the packaging side of things," Wilson told IM. He said that this trend is being reflected in company structures, with Imerys forming a new a new "pigments for paper and packaging" division, to replace its existing "pigments for paper" arm.

Of the total 48m tonnes of coating and filler pigments used in paper and board (P&B) in 2013, Wilson estimates that kaolin accounted for 18% of total market share; ground calcium carbonate (GCC) for 65%; precipitated calcium carbonate (PCC) for 13%; and talc for the remaining 4%. In terms of a split between coating and filler materials, kaolin accounted for 24% of the former and 10% of the latter in 2013. 

By the end of 2015, the impact of e-media devices is likely to show a pronounced effect on the paper industries in mature markets, with paper declining by 0.6% in North America and 1.7% in Europe in the period between 2010 and 2015. In contrast, Wilson forecasts that board and packaging will grow by 1.9% in Europe, whereas growth of 2.2% is expected in North America.

In emerging countries, meanwhile, paper is predicted to exhibit growth of 5.3% in South America and 4.2% in Asia, while packaging and board is expected to show growth of 4.4% and 7.2%, respectively, between 2010 and 2015. 

Filler pigments used in P&B, 2013.
Total 18.5m tonnes.

Kaolin2  

Source: Ian Wilson 

Construction to drive ceramics

According to industry analysis published by Transparency Market Research, growth in kaolin demand is expected to be driven by a rise in the global construction industry. The research service predicts that the kaolin and metakaolin market will reach $5.3bn by 2019.

Transparency’s report outlines that the kaolin market was worth $4bn in 2012 and is expected to register a 4% compound annual growth rate (CAGR) between 2013 and 2019. Meanwhile, the global metakaolin market is estimated to
grow at a CAGR rate of 4.4% to $124.2m by
the end of 2019, owing to its use in mortar and concrete applications.

Metakaolin, a dyhydroxulated form of kaolinite, is obtained by thermally treating kaolin, and according to Transparency, its ability to help reduce carbon dioxide emissions makes it a viable, eco-friendly alternative to traditional materials. With a global focus on reducing carbon footprints and major companies opting for sustainable alternatives, this is likely to drive demand for kaolin in the near future.

On top of increased usage by the construction sector in building foundations, pavements and architectural structures, construction growth drives demand for ceramic minerals like kaolin through the resulting increase in demand for ceramic sanitary ware and tiles.

The slowdown in China’s economy and knock-on effect in GDP-linked industries like manufacturing and construction has been well documented. The general consensus from industry participants is that, despite a slowdown in its industrialisation, China is still a growth area for raw materials. With 215m tonnes sanitary ceramic products exported in 2014 – accounting for 40% of global export supply – the country represents a large opportunity for ceramic minerals, particularly as there is a limited amount of high-grade kaolin mined in China.

However, the country has faced criticism owing to the lack of standardisation for raw materials in ceramics, which has led to quality fluctuations, as low grade kaolin – as well as montorillonite, diatomite, feldspar and nepheline syenite, also used in ceramics – cannot be used for the production of high quality end products. Impurities can result in colour changes, as well as affecting the chemical stability of ceramics.

Australian mineral sands producer Iluka Resources Ltd, which mines zircon used in ceramic glazes, noted the weakening demand for ceramics in China in its latest set of production results in October. However, the company added that it managed to offset the lower consumption from China by supplying increased demand in Europe and India. India, in particular, is expected to drive ceramic mineral consumption in the near future, as its growing middle class and rising quality standards create more demand for ceramic consumer items.

Coating pigments used in P&B, 2013.
Total 29.5m tonnes. 

Kaolin3  

Source: Ian Wilson

Coatings potential

While kaolin is used in the production of whiteware, adding necessary plasticity, shrinkage and vitrification properties, the mineral is also used in ceramic coatings, an industry with its own significant growth potential, according to a recent report published by Research and Markets. 

The report predicts the sector will pass the $10bn mark by 2020, although this includes coatings based on other minerals such as titanium dioxide (TiO2) and talc.

Largely attributed to an increase in the ceramic coating of automotive components, demand growth will also be driven by new product developments and increased consumption of plasma-sprayed ceramic coating in semiconductor and liquid crystal display (LCD) equipment. 

While Research and Markets has staked anticipated growth at a CAGR of 6.75% between 2015 and 2020, ceramic coatings manufacturer APS Minerals has projected growth of around 5% per year in demand from the semiconductor industry.

The healthcare industry is additionally expected to fuel the fastest demand growth for ceramic coatings in the short term.

The US, the largest market for coatings, is expected to expand at a rate of 6.73% over the five year period from 2015.

Ceramic proppants

While the USGS notes that the decline in kaolin sales to the paper industry were balanced in part by increased sales for ceramic proppants, the agency has yet to issue its 2015 analysis taking into account the downturn in oil and gas markets. 

When oil and gas prices were hovering at historic highs during the first half of 2014, a number of producers invested in expanding and launching new ceramic proppant operations. However, since the market collapsed in mid-2014, with oil prices of $50/barrel less than half what they were in H1 2015, and is expected to remain low for the foreseeable future, companies like BASF and Imerys have been hit hard by the resultant decline in demand.

Exploration and production (E&P) companies have sought to cut costs wherever possible, with many firms making a switch from ceramic proppants to cheaper silica (frac) sand.

Typically composed of bauxite, kaolin or a blend of both, ceramic proppant manufacturing facilities have had to cut production or come offline entirely as the current market environment has rendered them unprofitable. 

Imerys saw its energy solutions business revenue shrink by 4.1% in the first half of 2015 as the company conceded a that there had been a "brutal decline" in ceramic proppant demand and intimated that it would struggle to maintain its proppant cost structure when not in production. 

The latest casualty of the oil price decline in ceramic proppants, North American producer Carbo Ceramics, said in September that it would idle its manufacturing facility in Millen, Georgia, owing to reduced activity in the oil and gas market. 

Although the company noted that there was increasing evidence in production data suggesting that "using large amounts of sand is not the best approach to optimise the frac when certain reservoir conditions exist", this was the second ceramics proppant plant it has decided to close in Millen.

*Conversion made October 2015