Sierra Rutile forecasts modest rutile recovery in mid-2016

By James Sean Dickson
Published: Friday, 06 November 2015

On a recent site visit to Sierra Leone, the UK-listed TiO2 feedstock miner told IM that it is expecting flat, followed by steadily rising prices in currently depressed titanium-based chemicals markets, potentially marking a reversal of the continued declines since 2012.

London-listed Sierra Rutile Ltd told IM on a recent site visit that it expects titanium dioxide (TiO2) feedstock prices to remain flat into the first half of 2016, followed by modest rises from the middle of the year.

Neil Gawthorpe, marketing director at the company, said that he expects titanium sponge markets to recover before the welding industry. Following this, he thinks pigment sector consumption will begin to pick up, leading to a recovery in rutile pricing.

"We believe that Q3 to Q4 this year will see the bottom of the rutile market. After this, prices will be flat, then start moving up in mid-2016," Gawthorpe said, adding that he was "not expecting any phenomenal things to happen on pricing until 2017".

Pigment and pigment feedstock producers alike have been noticeably reticent in opinions on future mineral sands market conditions and prices this year, possibly owing to repeated previous predictions made by analysts and companies of market recoveries, which then failed to materialise. This eroded confidence in such forecasts and in the TiO2 business as a whole.

"There was 100 days’ worth of TiO2 inventory in pigment manufacturer warehouses – this is now down to 60 days, whereas the normal is about 40," Gawthorpe said. He told IM that many premium products are no longer commanding higher prices, thanks to the current soft market conditions.

Industrial grade rutile, a product offered by Sierra Rutile that is unsuitable for pigment markets owing to its lower particle size than regular grade rutile, is used in flux-cored wire for the welding industry. This material used to command a 10% pricing premium over pigment grade rutile when prices were high in 2012, according to Gawthorpe. However, the current situation is an improvement on the past, when industrial grade rutile was simply screened and discarded, Gawthorpe added.

He said that today, prices are roughly the same for both products. Long term pricing damage was also caused by the market spike of three years ago, Gawthorpe said.

"Only 20% of applications require chloride-route pigment, whereas around 60% can use either chloride or sulphate-route. Chloride material used to get a premium in every application, but 2012 prices led to substitution research."

The company also views its rutile, which it mines from its Lanti dredge mining operation and Lanti dry mine in southwest Sierra Leone to be a premium product over rutile sourced from other, coastal deposits.

Lower metal ion impurities relating to its ore’s river-based genesis, combined with its high angularity, result in a product that is favoured by consumers for its potential to create a higher-quality end product with less waste, according to Gawthope.

Despite the apparent advantages of Sierra Rutile’s material, the downwards pressure on the industry means that this is not reflected in its sale value. "Customers are not willing to pay a premium price for it in the current market," Gawthorpe told IM.

Sierra Rutile intends to "lock-in" a significant proportion of its volumes for 2016, but will not sign any long-term contracts for the moment. "Longer term contracts can be signed when pricing improves," Gawthorpe said.

Meanwhile, John Sisay, Sierra Rutile’s CEO, said that the business can cope with rutile prices at or even below current levels, whereas the company’s peers may struggle.

Future viability

Sierra Rutile believes that the ramifications of the present market slump could be far-reaching. It says that, for many pigment manufacturers, the future viability of the heavy mineral (HM) sector is a concern. While they currently enjoy low feedstock prices, the effect that these prices may have on supply beyond the industry’s immediate horizon is beginning to worry purchasers.

"One customer in particular said that they’d like to pay more, because the market isn’t sustainable in the long term with these prices," Gawthorpe explained. "But they don’t want to pay more while their competitors continue to pay [low] prices."

"The pigment industry is putting out fires everywhere," he added. "They tell us: 'Yes we’re concerned that three years from now, prices won’t support capacity expansion, but we don’t have the time to think about that right now."

For rutile markets to recover fully, however, the TiO2 industry must also heave itself out of its depression. As Gawthorpe stresses, pigment is unlikely to lead a recovery, but will rather lag improvements in titanium sponge and welding market conditions. This will then be "further compounded as and when the pigment sector strengthens," Gawthorpe told IM.

"For TiO2 feedstock markets, ilmenite stockpiles are a problem," Gawthorpe explained. "Production and demand are otherwise roughly equal though, due to a lack of investment brought about by current pricing, a supply deficit is looming."