TZMI: TiO2 moving towards a recovery

By Yoke Wong
Published: Thursday, 15 December 2016

Supply and demand is expected to balance in 2017, with consolidation to continue in China. Elsewhere in Asia the construction industry is leading the demand revival.

Titanium dioxide (TiO2) supply and demand fundamentals will balance in mid or late 2017, independent research firm TZ Minerals International (TZMI) consultancy said at its annual congress in Hong Kong at the start of November.  

Followed by some de-stocking in the seasonally slow period of 2017, the balance of supply/demand fundamentals will continue through 2018, TZMI’s principal consultant, David McCoy, said.

Latin America is showing signs of a return to growth after extensive demand disruption in parts of the region in the past 12 to 18 months.

Stronger European demand has been a positive surprise despite negative expectations due to the UK’s referendum to leave the EU and low consumer confidence earlier in 2016. However, demand in Q3 has been driven more by supply concerns and tight overall global supply/demand balance than by Brexit concerns, McCoy said.    

Inventory levels remain tight as a result of some minor production outages in Europe and, with the exception of an unforeseen recession or other supply/demand disruption, TZMI believes the current cycle of higher consumption amid reduced supply will continue through to the end of 2016.

Emerging Asia appears to be the most vulnerable region near term as it is most likely to experience a stronger downturn due to higher than expected demand during the peak of the cycle, said McCoy.      

"The key to managing the cycle near term for producers is to maintain inventory discipline through early 2017 when demand is at its seasonal low point," said McCoy.
If producers maintain discipline and avoid market share battles, balanced supply/demand can be maintained. Critical in this fight are the actions of China’s supply base, which is improving its product quality and global competitiveness, he added.

China continues to export increasing volumes of TiO2, with current estimates at 550,000 tonnes net exports annually, but this number could rise if demand weakens in the country or Chinese production increases.

Furthermore, following Beijing’s push to encourage more TiO2 chloride-route production in the country, China’s Henan Billions has continued to push chloride products into the market, according to TZMI.    

"While the full transition to consistent, stable production and quality will continue to take time, Billions’ chloride plant continues to hold up to expectations of the firm, leading the way in the 'chloride race’ in China," McCoy said. "The rise of China chloride is starting now."

Recovery led by construction and housing

Stephane Leblanc, managing director for Anglo-Australian miner Rio Tinto Iron & Titanium (RTIT) energy & minerals, also noted at the event that a recovery in TiO2 was underway, led by the construction sector. 

"Fixed asset investment and government stimulus have driven a recovery in the Chinese property market, strength in the US housing market has also been a positive influence," he told delegates during a talk.  

Due to an anti-pollution clamp-down in China, many facilities or mines that do not meet environmental standards have been shut down. As a result, Chinese ilmenite supply has declined leading to higher local prices and rising imports, Leblanc said. In addition, global excess feedstock inventories also continue to wind down. 

Despite the decline in the past four years, sulphate ilmenite prices have increased steadily this year and reached levels as high as 900RMB/tonne ($132.70) on a FOB China basis in July, according to RTIT data.  

In contrast, zircon has not experienced a similar recovery TiO2, Leblanc said.

Meanwhile, Marcus Schutz from construction consultancy B+L GlobalBuildingMonitor predicts that China and India will be the main drivers in the growing housing demand in Asia.

Construction activity is a key demand indicator for TiO2 pigments as the mineral is a key raw material in paint, in addition to its use in decorative paper, which is a growing market for the pigment mineral. 

Permits for residential buildings in Asia are expected to increase to 27.5m units in 2020, up 12% compared with 24.5m units in 2016, according to B+L’s forecast.

"The most important drivers in many regions are urbanisation and immigration. The main drivers are in China and India," Schutz said during his presentation. "China is driving the Asian construction activity (…) most of this is still happening in China, it is going to continue to happen until 2020 if the factors stay the same." 

In China, building permits for residential buildings are forecast to rise to 16m units by 2020, up nearly 10% compared with 14.6m units in 2016.  

Although there has been widespread concern of a real estate collapse in China due to an overheating economy, Schutz believes real demand still exists.   

"Despite the risks of a housing bubble, in the end the demand is still there in China," Schutz said.   

Following China, India has the second highest construction activity in Asia, according to B+L data, which forecasts that the underlying demand in India is 6.8m units of houses in 2016 and construction growth in the country is likely to continue.

Elsewhere in Europe, construction activity will fall slightly until 2020, when there will be some slight recovery, Schutz said.  
Consolidation in China

Meanwhile consolidation and changes to Chinese TiO2 supply are likely to continue. 

There are 42 sizeable TiO2 producers still operating in China but, in contrast to elsewhere in the world, Chinese production is scattered.

In order to promote industrial consolidation and develop economies of scale, China must eliminate outdated production, which includes small and polluting plants, and upgrade its processing technology, the deputy chairman of Henna Billions, Ruiqing Tan, told delegates at the TZMI Congress. 

TiO2 output in China was 2.32m tonnes in 2015, and sulphate-route accounted for 98% of the total production, according to Henan Billions. Some sulphate-route production facilities have recently been forced to halt production due to stricter anti-pollution checks. 
As a result of intensifying environmental efforts and the Chinese government’s promotion of industrial upgrade, chloride-route capacity is expected to grow.

As most TiO2 producers have not been profitable in the past eight years and there is a high debt ratio within the Chinese industry, the debt ratio has to be cut in order to achieve sustainable development, Tan said.

"Multinational companies are facing heavy debt. This mean this industry is unhealthy. It’s a signal of crisis," he added.

Henan Billions and fellow TiO2 producer Sichuan Lomon Co. have secured financial backing to assist in their proposed merger deal, and the newly-formed company Lomon Billions aims to become the largest TiO2 producer in Asia.

As part of the expansion plan, Lomon Billions plans to build a new 200,000 tpa TiO2 chloride-route production facility and the plant is expected to be in production by 2019, Tan said. 

Henan Billions believes that the global TiO2 demand in the coating industry will increase at an annual rate of 5% and the new facility will serve to meet this growing consumption.

Investment in mineral sands

More financial funds could invest in mineral sands mining projects as the sector has outperformed other commodities, financial advisor Hannam & Partner LLP told delegates at the TZMI congress in November.    

"Everyone else is struggling to make profit in the last quarter, [but] the mineral sand producers outperform the rest of the sectors," said partner at the firm, Ingo Hofmaier.  

Total shareholder return from the top five mineral sands producers Iluka, Tronox, Kenmare Resources, Sierra Rutile Ltd between January 2012 to December 2015 have increased by 54%, higher than the 38% return in copper, said Hofmaier, citing data from financial data provider S&P Capital IQ.  

Furthermore, "the upswing in prices is happening and is expected to run for a couple of years," he added.

The downtrend in Ilmenite, rutile and zircon prices started in 2012 but prices started to recover in early 2016. The higher prices are expected to support the financial performance of mineral sand producers.

Brokers such as Deutsche Bank, Macquarie, Credit Suisse, UBS, J.P Morgan, Canaccord and Mirabaud have all forecast market recovery and price increase in rutile, ilmenite and TiO2, Hofmaier said.   

"From 2012 to 2015, it was impossible for junior companies to raise any equity," Hofmaier said.

"Mining speciality fund still have $6-7bn, this implies that there is a silver lining for mining companies," he added.   

Hannam & Partner LLP has worked with Kenmare for the past two years in its debt restructure, reducing the mineral sand producer’s net debt from $378m to $25m.

Sibelco to keep Stradbroke open for three months

Improving demand has led Sibelco Australia to reverse its decision to halt mineral sands mining at its Stradbroke Island site in Queensland for the next three months, the company told IM on the sidelines of the TZMI conference. 

"Due to improving demand, the production pause will not happen," said Gerry Daly, mineral sands sales manager, said.

Sibelco was initially planning to restructure its Stradbroke Island mineral sand mining operations ahead of the Queensland Government’s mining phase-out planned for 2019.

Due to low mineral sand commodity prices, the company announced in September that it may shut down operations between December 2016 and February 2017 depending on market conditions.

However, the plan has now been scrapped as demand for ilmenite and rutile improved due to re-stocking from TiO2 producers. Mined output in Stradbroke Island includes ilmenite, rutile and zircon.

The Queensland government has committed to ending mining activities in the North Stradbroke Island region by 2019 and the repealing of 2013 amendments to return to the original intent of the North Stradbroke Island Protection and Sustainability Act 2011.

The 2011 Act did not allow renewal of leases beyond 2019.

"There are only three years left. They are going to get everything out of the ground while they can," a second source said.