What goes up…

By Myles McCormick
Published: Friday, 07 July 2017

As the dust settles following a price war that has quartered the market value of iodine in recent years, IM reports from Chile on the causes of the roller coaster ride in the market and looks to the future of demand for the mineral.

Iodine1 
During the initial stages of iodine production, the caliche is blasted
before being moved to leaching piles.  
SQM 

In March 2011, Japan was hit by the most powerful earthquake in its recorded history. The tremor, coupled with ensuing tsunamis measuring up to and over 40 metres, wreaked havoc. Nearly 16,000 people were killed, over 6,000 injured and over 2,500 remain missing, according to police reports. 

Property was destroyed, infrastructure crippled and utilities cut off across the country. A nuclear plant at Fukushima went into meltdown. The Prime Minister, Naoto Kan, described the incident as "the toughest and the most difficult crisis" the country had faced since the Second World War. 

Amidst the chaos, the price of iodine – a mineral used in healthcare, nutrition and industry – rocketed. As a result of the fallout from the earthquake, output from Japan, the world’s number two producer, was severely restricted, while demand for potassium iodide, which protects the body from radiation poisoning, was pushed up. And as the market grew tight, the price responded with stark elasticity, growing from a range of $32-34/kg (iodine crystal, 99.5% min, spot and contract) in early March to $60-95/kg by late June (see Figure 1) 2011.

Figure 1: Iodine crystal, crystal, 99.5% min, drums,
spot and contract, $/kg 
Iodine2  
Source: Industrial Minerals

Today, the price of iodine sits around $20/kg, a staggering drop from its 2011 highs. But just as supply and demand factors can cause price to soar, so they can cause it to plummet.

In an oligopolistic market like iodine, dominated by a small number of suppliers, changes in supply levels can affect the market drastically, causing sharp and immediate effects to the price of the mineral, as illustrated by the peaks and troughs seen over the course of the last five years.  

Before the storm

In the half-decade from 2006 to 2011, iodine prices experienced relatively stable growth, increasing from $22/kg to $34/kg, driven by rising demand from China. 

Globally, people had money in their pockets. Health insurance companies pushed for greater numbers of scans (iodine is used in x-ray contrast media) and the use of liquid crystal display, or LCD, screens for high definition televisions and touchscreen devices grew.

In each of these cases, the cost of iodine was a minimal part of the overall goods, so manufacturers paid little attention to the cost of the mineral. Producers enjoyed their days in the sun and prices rose gradually.

"The market was healthy, good for producers. It was stable," notes a salesman at one major producing company. 

In 2011, however, the shock of the Japanese Tohuku earthquake limiting Japanese production, coupled with an environmentally-driven cut to the supply levels of Cosayach SA, Chile’s number two player (the company had to shutter two wells, reducing its production from 4,500 tpa to 2,500 tpa), combined to slash production, in turn driving prices as high as $95/kg in a matter of months. 

The restricted production was bound to drive up price. But this time it was accentuated by the sudden and unexpected nature, as well as the scale, of events. This hit the market hard and producers drove up prices – within three months, they were up 135% at the midpoint. 

"Customers aren’t shy of kicking you on the ground. Producers and distributors at this point said, 'The shoe’s on the other foot’," notes Rob Moss, managing director of Landsdowne Chemicals, a UK-based iodine distributor. "If you don’t take advantage of it, you’re not doing your job are you?"

Customers were willing to pay whatever was required. "The market was so scarce, we could sell all production, regardless of quality," notes one producer. 

The elevated price level brought producers flocking. Existing players pushed up production and new ones entered the market. 

As in an under-eights football match, where 22 children chase the ball around the park, without regard to longer term strategy and positioning, so iodine producers chased the high price dynamic. 

Chile’s number three player, ACF Minera SA, was already looking at expanding, and 
its owners, the Urruticoechea family, seized the opportunity. Through a partnership deal with Japan’s Toyota Tsusho, they created a new venture, Algorta Norte SA, which began shipping product in mid-2012, ultimately adding a further 4,000 tpa to the market.

Sociedad Quimica y Minera SA (SQM), the world’s largest producer, expanded the capacity at its Nueva Victoria site in 2013 and has been increasing production since.

Cosayach would later bring full production back online, at higher levels than before, with the addition of a pipeline, and Japan’s producers also eventually returned to the fray. 

Iodine3 
The 2011 Tohuku earthquake in Japan caused widespread
devastation and drove up the price of iodine.
Wikimedia 

Iodine4 
The leaching of the caliche allows brine to be pumped from the piles for processing.
SQM

Market correction

With the market saturated with product, the price quickly started to drop. 

This was simply a "consequence of the oversupply generated due to the increased installed capacity following the iodine price increase in 2011", says Daniel Jiménez, vice president for iodine, lithium and industrial chemicals at SQM. 

"When you add big volumes onto a market that’s not really tight in the first place, it’s going to respond," notes another player. 

There was also an element of less-than-expected growth in the market. Predicted demand for methyl iodide as a replacement for methyl bromide in the crop fumigation and field sterilisation never materialised. A global recession pushed down demand for x-ray contrast media and flat screen TVs. 

"The correction was pretty rapid. Price fell pretty fast. In certain places it was brutal," says Moss. 

Throughout 2012 and 2013, prices remained high. But by early 2014 they had dropped to $45-55/kg and continued falling quickly. In early 2015, they were at $31-37/kg, approaching pre-earthquake levels. But at this point Cosayach’s production hit 5,000 tpa and the decline continued apace. 

At the start of 2016 prices were at $27-30/kg. By the beginning of this year, they had fallen below $20/kg in some cases. 

"Who’s to blame? I don’t think the customer. Sure you can say they pushed down the price. But if they see a half open door they’ll put their foot in it. We did it when prices were going up, why shouldn’t they do it when they’re going down?" says Moss.

Macho tactics

An astute observer could reasonably ask why the producers, as the price continued to fall amidst a saturated market, didn’t just stop adding supply, or perhaps reduce it slightly.

Part of the problem was a blinkered focus on market share from the main suppliers, engaged in a price war to outdo each other on this metric at any cost. 

"Recovering share of the market was more important than price," says one producer. 

"Cosayach and SQM had this tit-for-tat nonsense. Cosayach would push prices down, and SQM would respond," notes one player, describing the interactions as "macho behaviour".

SQM especially has not been shy about proclaiming its plans for increasing its market share. In 2012 it had a global market share of 34%, though this slipped to 28% the following year as Algorta Norte came online. The company has been keen to regain its previous heights. 

It wants to increase its sales volumes so that they are on par with increased production rates. "We have been seeking to increase our volumes to the level our nitrates and iodine sales are balanced with our production," explains Jiménez. "We estimate that this balance would be reached at a market share of approximately one third, which is close to our current market share in the iodine business," he adds.

One offshoot of the low price dynamic was that it had the potential to push out smaller players from the market, which without the firepower and diversity of their larger rivals, couldn’t survive as unit sales price approached cost.

Sure enough, SCM Bullmine SA ceased operations in 2015 and Eloisa SpA mothballed its plant before it reached production. Atacama Minerals Chile SCM continues to produce iodine although its owner, Quebec-based RB Energy Inc. has entered administration.

Whether this makes the tactics of the larger players predatory is a different question. "Price levels are the consequence of the prevailing supply-demand balance," insists Jiménez, noting that in a highly competitive market like iodine "prices will be not what somebody would want them to be but, where the equilibrium between supply and demand is reached". 

He accepts however that current market conditions "will certainly represent a challenge for all producers, and particularly the highest cost producers".

Iodine5  
Iodine use is growing in a range of end markets, most notably
x-ray contrast media, where it is used to enhance visibility in scans.
SQM 

Blinking first

With the cost of producing iodine in Chile around $15-17/kg, according to industry participants, the dipping of prices below $20/kg, as happened in late 2016 caused companies to get worried. 

Financial statements published by the Chilean securities and insurance regulator (SVS) show both Algorta Norte and Atacama Minerals were in 2016 producing at levels where costs outweighed receipts. 

It got to the stage where "the game wasn’t fun anymore," according to one producer. 

With profits at minimal or non-existent levels, reinvestment becomes a luxury many cannot afford, which observers worry may leave maintenance work undone, and lead to problems further down the road. 

Unwilling to sell below cost, two of the influential players, Cosayach and ACF, bowed out of the standoff, slashing production in the first quarter of 2017. Cosayach will reduce production to 3,500 tonnes in 2017, down from 5,000 tpa previously. It is unclear what ACF’s production plans are, but it has reportedly laid off the entire mining staff at its Lagunas operation.

In both March and April Chile’s exports of iodine fell by 400 tonnes on the previous year.

The lower production outlook for the 2017 calendar year has had a positive effect on prices, with stability and perhaps a slight uptick the market’s response. 

"Prices appear to have stabilised, or at least stopped dropping during Q2," notes SQM’s Jiménez.

How long will supply reductions last remains to be seen. Some players have questioned whether these are long term or just temporary measures. 

The trend in pricing nonetheless appears to be an upward one. Even prices in India, traditionally a dumping ground for iodine, appear to be edging up from the particularly low levels of around $18.50/tonne seen in recent times. 

Tom Becker, CEO of US-based producer Iofina Chemical Plc, notes that "we have seen prices in H1 2017 slightly higher than late 2016 and, while not certain, we believe that iodine prices are more likely to move higher". 

But much depends on the continuity of the supply changes in Chile. "It probably isn’t wise for me to make guesses as to how the Chilean suppliers will manage their production," says Becker. 

For those companies that have stayed the course to now, cost reduction has proved key.

Becker notes that over the past two years Iofina has made cost reduction at existing production facilities a priority, rather than adding extra facilities.  

He adds: "We are now considering options to manufacture iodine at an additional site which, when executed, must reduce our overall cost of production."

SQM is thought to have the lowest cost position in the market. But it too has put considerable effort into reducing costs, bringing its unit production cost down significantly over the past number of years.

It has also been aided by its diversity, with potassium nitrate and lithium sales going strong, something that stood in good stead as the iodine selling price fell.

Cosayach this year has also made a move into potassium nitrate. The company is seeking to diversify by reactivating nitrates production (nitrates are a by-product of iodine, both coming from caliche ore), which had been offline for a number of years. This will be mixed with potash shipped in from abroad to create potassium nitrate, a product with a market in significantly better shape than iodine.

The other contender

Japan is a somewhat different beast from Chile. The Japanese produce at closer to $12/kg as a by-product of gas. 

"There is no drilling or mining. Just pump the water out, extract the iodine and pump it back," says one producer. 

According to the US Geological Survey (USGS), Japan has identified reserves of almost 5m tonnes iodine, almost three times that of Chile.

But environmental issues prevent the Japanese from dominating the market. The pumping of iodine out of brine fields causes coastal erosion and shifts in the seabed as the coastline fills the void left by the removed brine and underwater landslides drag chunks of land from the shore. 

On top of this, for every cubic metre of brine pumped out, an equivalent volume of seawater has to be pumped back in, diluting the material and further limiting production. 

As a result, despite sizeable reserves, the quantity Japan is able to produce is very low. 

The environmental restrictions have, however, led the Japanese to do a measure of recycling of iodine, something the Chileans have not shown much interest in, due to their lack of production restrictions. A measure of recycling is also carried out in Europe, India and America.

Recycled iodine provided about 6,000 tonnes to the market, or 18%, in 2015, according to the World Iodine Association (WIA). Half of this came from chemical synthesis, where iodine is used as an intermediate. The rest came largely from recoverable waste created in the production of LCD screens and, to a lesser extent, x-ray contrast media. 

The WIA expects the market share occupied by recycling to continue to increase moderately over the coming years, driven by regulatory restrictions and a growing concern for sustainability of production processes. It is unlikely to account for more than 20% of market share any time soon, however. 

A growing market

Estimates by major producers put the size of the global iodine market at around 33,000 tonnes in 2016.

Chile dominates global iodine production, accounting for about 58%, or 19,000 tonnes, of this. Japan, in second place produced a further 10,000 tonnes. And the US, in third, contributed about 2,000 tonnes.

The overall market is expected to grow by around 2% in 2017, largely driven by growth in Asia, especially China, whereas North America and Europe are very stable, notes WIA president, Felipe Smith.

The body predicts a demand growth rate of 2-3% will continue over the next 3 years. This should remain relatively stable and constant, with most of the industries into which iodine flows – medicine, disinfectants, biocides – not particularly dependant on economic cycles. 

SQM predicts around 800 more tonnes being needed by the market this year, while other more bullish participants quote numbers as high as 1,500 tonnes. This depends very much on what happens to demand within the individual segments of the market, notably in x-ray contrast media. 

Demand for x-ray contrast media is leading market growth as healthcare improves in the developing world. 

In industrial markets there is some growth in biocides. In paints, for example, iodine is making some inroads pushing out bromine, which is seen as being harmful. Continuation of this trend depends however on the price of iodine remaining low. If iodine doubles in price it is likely consumers will go back to bromine. 

There has been an increasing volume of iodine imported into China in recent years, though market players have indicated they often "lose sight" of material as it enters the country, given the sprawling network of middle men and distributors. 

The assumption is that this material is a result of shifting manufacturing of LCD technology from Japan and Korea to China. This theory is backed up by increased Japanese exports. 

The industry is keen to explore new end markets for the mineral. Smith notes that the WIA is actively encouraging the emergence of new uses, while Iofina’s Becker says his company is researching new iodine-based products.

The price dynamic of recent years notwithstanding, optimism for the future abounds. 

"We are confident that with prices showing some more stability, the industry may regain confidence in building up inventories and developing new projects," says Smith.

Blast, Pump, Drip: Creating Iodine

In Chile, iodine is created from brines drained from caliche in the country’s arid north.

The process begins with the clearing of desert terrain and blasting of the caliche before moving it to form a leaching pile. Irrigation and drainage systems are installed in the leaching piles. The leaching process of washing the caliche then allows a liquid solution, or brine, containing nitrates and iodine, to pass through the pipes. 

From here, the brine is pumped towards the processing location. It is stored in large pools and pumped to an absorption tower where it is mixed with a gaseous form of sulphur dioxide (created in a rotating oven). The mix of brine injected with gaseous sulphur dioxide forms iodide. The iodide is pumped into a reactor, which is connected with two other lines that pump in brine from the pools and sodium hydroxide. 

In the processing plant the solution is mixed with kerosene to separate the iodine from the rest of the brine. It then passes through a concentration system, where a high concentration iodide is obtained and sent to a conditioning process, which in turn cleans it of all its impurities and allows it to enter its final stage: iodine with 99.9% purity.

However, at this point the iodine is still in liquid form. So it is sent to so-called prill towers, where it arrives into prill pod containers, repositories with hundreds of small holes. From these containers, the liquid iodine is dripped down, solidifying during the fall. 
The final product is crystallised, high purity iodine.

Key uses

Biocides

Iodine-based biocides are used in paints, adhesives, wood treatment and fluids for metallurgy.

LCD

Liquid crystal displays, such as those in HD televisions and touchscreen technology, make use of two sheets of polarising material with a "liquid crystal" solution between them. Iodine is a key component in the polarising films.

Nutrition

Iodine is important in the prevention of goitre, thyroid malfunction and cretinism, as well as growth defects in foetuses. In order to ensure people get their recommended intake, salt is iodised all over the word.

Pharma

Iodine is used as a raw material for x-ray contrast media, enhancing visibility during various bodily scans. It is also used in antiseptics, anti-radiation pills and as an active ingredient in various other pharmaceutical products, including antispasmodics, coronary vasodilators and neuromuscular blocking agents.