Chinese barytes producers may struggle to undercut India

By Yoke Wong
Published: Friday, 08 September 2017

Large Chinese producers are already struggling with thin profit margins, and cannot continue to undercut India should prices fall.

Chinese barytes exporters fear they may struggle to maintain their price advantage over India, if a new tender process lowers prices from the latter origin.

Markets are still waiting for news on when the state-owned barytes miner Andhra Pradesh Mineral Development Corp (APMDC) will announce the next round of tenders. Pricing for the top grade of barytes will determine the competitiveness of Indian supplies in international markets.

But many buyers expect Chinese supplies of SG 4.2 barytes to remain priced below Indian supplies, even if the next tender slashes Indian exporter costs.

Buyers at two major oilfield services companies told IM in August that Chinese suppliers could cut their prices to compete for global market share with India, given any foreseeable APMDC price cut.

Tight Chinese margins

But sources in the Chinese market seem less certain that there is room to undercut Indian sellers given high production costs in the near to mid-term.

According to IM’s assessment on 20 July, Indian barytes prices for SG 4.2 lump was at $90-110/tonne FOB Chennai, compared to $80-90/tonne for Chinese supplies on FOB China basis.

A major Chinese barytes producer and trader reported "very low profit margins" for the drilling-grade mineral. 

The producer told IM that barytes production costs at a legal facility with environmental certificates in China would be approximately $80/tonne, while unregulated producers who did not meet strict environmental standards could operate at reduced costs.

However, unregulated producers have been increasingly shut down by the Chinese government during the waves of environmental inspections that swept through the country since early this year. Hence, it is unlikely that Chinese barytes prices could fall below $80/tonne, the producer said.  

"Every cycle has to be controlled very carefully or else you will lose money," the producer said.  

The increasingly strict anti-pollution controls on all mining and processing facilities throughout China is cited by Chinese suppliers as the key factor driving production costs higher.  

"Barytes mining and production will be more and more regulated in China," the producer said.

Meanwhile, another trader estimated that up to one-third of barytes capacity in China is idled due to the anti-pollution control.

A US-based barytes buyer agreed with this assessment, though he noted that smaller sellers could avoid environmental scrutiny and offer competitively-priced products.

Indian tender

Unlike other barytes exporters, such as China and Morocco, where supplies come from numerous small mines, the huge majority of Indian production comes from one site.

Access to the Mangampet site, the world’s largest barytes deposit, is controlled by the regional government-owned Andhra Pradesh Mineral Development Corporation (AMPDC). These supplies are offered to private-sector employees through a tender system.

High grade Indian barytes, with specific gravity of over 4.0, has been kept out of the US market for over a year, as it is not competitive with equivalent supplies from China.

Barytes with relatively low specific gravity are more competit-ive, and are shipped to the US for blending with higher grade supplies, and used in onshore drilling.

API-grade Indian barytes dominate the key Middle Eastern markets, particularly Saudi Arabia, where they are valued for their reliable quality, as they originate from a single mine.