A Chinese squeeze? Fluorspar industry governed by uncertainty

By Siobhan Lismore-Scott, Yoke Wong
Published: Friday, 29 September 2017

China is the largest producer and consumer of fluorspar, but supply has been curtailed due to draconian environmental legislation, which has pushed up prices. Will this give new producers in Vietnam, Canada and Afghanistan a chance to swoop in and further alter the supply mix? IM Consultant Editor, Siobhan Lismore-Scott, reports.

Flu1  
Anettelinnea 

Over the past two years, the worldwide fluorspar market has seen a great deal of uncertainty. Prices have edged slowly lower and volumes have dropped, while the supply mix has shifted as large producers reduce output and new suppliers, such as those in Vietnam, have started to increase production.

Fluorspar (CaF2) is an essential raw material in the chemical, steel and aluminium industries, as well as in a growing number of high-tech green technologies. It is irreplaceable in the markets it serves, although some substitutes have been tested in recent years.

The market is essentially divided into two sectors: metallurgical (and ceramic) grade fluorspar (metspar), with a CaF2 content of 80-94%, and acid grade fluorspar (acidspar), containing 95-97% CaF2.

Other grades include welding grade, with >97% CaF2 content and sub-metallurgical grade, <80% CaF2.

Metspar is primarily sold as a flux into markets for iron and steel casting, and steelmaking. It accounts for around 40% of fluorspar demand.

Acidspar is the raw material for hydrofluoric acid (HF) and thus for all fluorochemicals, in addition to being an important feedstock for aluminium fluoride (AlF3) and other markets (such as welding rods). It accounts for around 60% of demand.

The world’s identified resources of fluorspar amount to approximately 500m tonnes contained, according to the US Geological Survey (USGS). However, if reserves of fluorine present in phosphate rock are also considered, this adds a further 1.1bn tonnes fluorspar ore – which at 3.5% fluorine would contain about 79m tonnes fluorspar. In addition, world reserves of phosphate rock are estimated to be 67bn tonnes, equivalent to about 4.8bn tonnes of 100% fluorspar equivalent.

South Africa holds the largest share of these reserves (18%), with 41m tonnes of fluorite reserves, followed by Mexico (14%) with 32m tonnes, China (9%) reporting 21m tonnes, and Mongolia (5%) at 12m tonnes. 

Only around 51% of the identified reserves are commercially mined.

World fluorspar production capacity is about 6.4m tpa, according to USGS data for 2016, and is dominated by China (65%) and Mexico (15%), followed by smaller production volumes from Mongolia (3.5%), and Vietnam and South Africa (3%) (see Figure 1).

Flu2  

Demand 

Aluminium fluoride is one of the largest end markets for acidspar, supplied from either captive mine production or via the HF route of merchant production. 

Of the world’s 1.5m tpa HF capacity, 51% of this is consumed by aluminium fluoride and other markets, such as fluorine-derived chemicals.

Aluminium fluoride is also the principal raw material for synthetic cryolite (Na3AlF6), and both minerals are crucial ingredients in the aluminium production process, where they are used in a molten bath to dissolve alumina and recover electrolytic aluminium.

Volatility in metal markets over the past few years has affected demand for aluminium fluoride, although the fact that it is mostly irreplaceable in the production of aluminium means that it is a steady, albeit diminished end market. Demand has not yet reached pre-recession levels seen in 2012.

For metspar, prices are now picking up as steel (rebar and hot rolled coil) demand in China has been quite strong, supporting metspar demand.  Chinese steel prices, which are currently quite strong, are normally quite good indicators of steel demand since China is the biggest producer globally. (see Figure 2).

According to the IM Pricing Database, acidspar prices are currently at around $340-360/tonne for 97% CaF2, wet filtercake material on an FOB China basis.

The pricing trend for this grade illustrates the market volatility over the past five years, which has seen prices fall from highs of $475/tonne in 2012 to lows of $240/tonne in 2016. 

The movement in acidspar prices corresponds to output from leading supplier countries.

Metspar prices have recorded less of a recovery recently than those for acidspar, but have started to pick up. According to the IM Pricing Database, prices for metspar with 80-90% CaF2 content were $260-340/tonne FOB China at the end of August 2017, having fallen from a peak of $321-437/tonne in 2012. 

Flu3 

China’s influence

Although China does not hold the largest reserves of fluorspar, it is both the largest producer and consumer of the mineral. 

It is also the largest producer of HF and aluminium fluoride and is a net exporter of acidspar, but a net importer of metspar.

In 2016, HF acid production in six provinces in east China accounted for two thirds of domestic demand, at 1.1m tonnes. East China acidspar demand, meanwhile, was 2.4m tonnes, but output was only 1.9m tonnes, leaving a supply gap of around 560,000 tonnes last year.

In the past five years, however, Chinese exports of acidspar have dropped significantly (see Figure 4), while average export prices decreased for both CaF2>97% and CaF297% material.  Imports, on the other hand, increased for both acidspar and metspar.  

This is in line with predictions from analysts several years ago, which stated that China would have to begin importing material to sate domestic demand. 

For fluorspar CaF297%, Chinese export volumes increased 5% year-on-year (y-o-y) to 173,848 tonnes in 2016, according to China Customs Data. South Korea and Japan were the largest consumers of Chinese exports, at 20% and 16.9%, respectively, followed by India, Taiwan, Indonesia, the Netherlands and Malaysia. However, the average export price for this grade dropped from $245.92/tonne in 2015 to $230.33/tonne in 2016.

The northeastern Chinese port of Tianjin accounted for 32.5% of China’s total exports, though trading companies use this as a transfer port from Mongolia as well as a direct shipping route for material produced in China. Zhejiang, the main fluorspar-producing province in eastern China, accounted for 21.3% of exports, followed by Jiangxi, Guangdong, Inner Mongolia, Fujian and Hunan.

For CaF2 97%-grade fluorspar imports into China, volumes dropped 36.6% y-o-y to 75,062 tonnes in 2016. Mongolia accounted for 90% and Myanmar for 9% of supply. The average import price from these countries was $139.30/tonne and $87.79/tonne respectively, down from 2015, average prices stood at $141.69/tonne and $106.03/tonne, respectively.

Around 67% of these imports went to Tianjin, 23% to Inner Mongolia and 9% to Yunnan, which shares a border with Myanmar.  

Exports of fluorspar with CaF2>97% content, meanwhile, saw volumes jump 17.4% y-o-y to 200,866 tonnes. The US, India and Japan accounted for the largest share of consumption, with 28.5%, 27.7% and 20.6%, respectively, followed by the Netherlands and South Korea. Only Japan saw a y-o-y drop. The average export price also dropped from $284.39/tonne in 2015 to $240.66/tonne in 2016 (See Figure 5).

Import quantities, however, decreased 52.2% y-o-y to 23,621 tonnes in 2016. 

Vietnam accounted for 41.3% of this supply while Thailand accounted for 35%, at price levels of $159.56/tonne and $178.12/tonne, respectively.

In downstream industries, aluminium fluoride exports from China dropped 25.4% y-o-y to 115,604 tonnes while the average export price also dropped to $961.25/tonne compared with a price range of $1,199.22-$1,077.45/tonne between 2013 and 2015.

HF acid exports from the country in 2016 increased 3.3% y-o-y to 233,564 tonnes, but average prices averaged $1,004.24/tonne, down on previous years.

Japan ranked highest in terms of HF acid consumption from China, accounting for 38%, followed by South Korea (27.6%), Taiwan (17%), Brazil (3%), the US and Thailand.

Figures from China Customs suggest that HF export volumes are set to rise again in 2017, with a total of 128,766 tonnes exported in the first half of this year, compared with 112,996 tonnes in the corresponding period of 2016 and 108,038 tonnes in H1 2015.

Flu4 

Anti-dumping 

Despite the apparently solid growth trend in outbound shipments of Chinese fluorspar, there are headwinds facing the Chinese export market. In March 2017, the US Department of Commerce imposed anti-dumping duties on a number of refrigerants imported into the US from China.

After launching an investigation in October 2016, the office determined in April that a series of fluorochemical compounds commonly known as R-134a from China "is being, or is likely to be, sold in the US at less than fair value".  

Anti-dumping duties of 148.79-167.02% were imposed on China-origin R-134a imports to the US effective from 1 March 2017. 

"This is something that we have been lobbying about for some time. It has been several years, now it finally looks like it is going to hold," one US-based fluorochemical industry participant told IM.

The petitioners for this anti-dumping investigation include members of the American Hydrofluorocarbon Coalition, which include Amtrol Inc., Arkema Inc., The Chemours Co., Honeywell International Inc., Hudson Technologies, Mexichem Fluor Inc. and Worthington Industries Inc.

Environmental legislation

The largest threat to Chinese fluorspar supply is the country’s increasingly tight environmental legislation, which has severely disrupted output in other Chinese industrial minerals markets.

Fluorspar was named as a strategic mineral in 2017 by the Chinese government, which means that any decisions regarding allocation of reserves and resources will be carefully considered. 

Smaller producers are less likely to have mining applications approved, or be able to afford the required upgrade of their facilities, which could mean consolidation in the market.

Several contacts confirmed to IM that environmental inspections, temporary production shutdowns and new restrictions on using dynamite, as well as a lack of clarity surrounding the country’s mining permit renewal policy have all affected fluorspar production to some extent.

Most agreed that supply and demand fundamentals ultimately dictate the direction of the fluorspar industry and its pricing, but said that environmental inspections are likely to keep supply tight, meaning that other market factors will have more of an impact on price.

The recent price rises due to the supply squeeze in China has already had a positive effect on some companies’ financials. 

China Kings Resources Group, the leading – and the only listed – fluorspar company in China, announced revenue and net profit increases in H1 2017 of 20.6% and 32.9%, respectively.

The company said that for its largest end market, the fluorine chemical industry (for which it makes HF acid), its output and capacity both grew by 10% y-o-y.

China Kings’ selling price for acidspar increased from Chinese renminbi (RMB)1,195/tonne ($182.80/tonne*) excluding VAT in December 2016 to RMB 1,456/tonne ($222.76/tonne) in Q1 2017.  In H1 2017, the price averaged RMB 1,701/tonne ($260.30/tonne).

The company attributed the price increase to recovery in the downstream HF acid industry as well as growing demand for fluorspar and the fact that supply was constrained due to "policy and environmental pressures".

Policy change was outlined as a risk in the company’s H1 report, with China Kings saying that, "in recent years, as China has made protective development [a priority] policy for fluorspar resources, the industry has been regulated. But as resources are diminishing and as China is paying more attention to environmental protection as well as effective resource utilisation (…), China may announce even stricter policies for fluorspar mining, exploration and production."

Other fluorspar suppliers

Mexico

Mexichem is the world’s largest vertically integrated fluorspar company outside China and accounts for the majority of Mexican production, with an established capacity of 890,000 tpa.

Mexichem has the world’s biggest single fluorspar mine, Las Cuevas, at San Luis Potosi, Mexico.  It benefits from relatively low mining and beneficiation costs (around $3.95/tonne, according to a 2008 report by International Mining).

It is completely vertically integrated and sells metspar and acidspar as well as HF acid and AlF3 and other downstream products, such as refrigerants.

Mexichem Fluor posted revenues of $583m in 2016, down 4% from the previous year. EBITDA** was $228m, down 6% y-o-y.

CEO Antonio Carillo said during the company’s full year 2016 results presentation that he expected to see "further volume pick up from cement industry customers in 2017".

Nevertheless, Mexico has not been immune to demand stagnation and testing industry conditions since the global economic crisis, with the country’s 2016 fluorspar output hitting its lowest levels in a decade, totalling just 624,754 tonnes.

Mexican junior Fluorita Exportadora de Mexico (FEM) established a joint venture with local counterpart Minera Muzquiz in 2015 to mine and beneficiate ore to produce low-arsenic grades of acidspar from its three projects, including Los Alisos in the state of Sonora, Navidad in the state of Durango and Frio in the state of Zacetecas. 

Low-arsenic acidspar is currently being produced at Frio and at Minera Muzquiz’s operations in the northern Mexican state of Coahuila.

Mongolia

Mongolia is an established fluorspar supplier, producing 230,000 tonnes in 2016, down from 280,000 tonnes in 2015.  

Shipments of acidspar were mainly to Russia, China and South Korea. Metspar was exported to Russia, China and other CIS countries.

The largest producer in Mongolia is Mongolrostsvetmet LLC, which manufactures both acidspar and metspar, with a total production capacity of 130,000 tpa. 

Gobi Tushleg Minerals Co. Ltd. is another leading fluorspar mining company in Mongolia with seven open-pit and underground mines in Dund-Govi and a total production capacity of 80,000 tpa.

Among the country’s other major suppliers are MonCzechMetal (11%), Kevin Invest (8%), Bayalag Jonsh (4%), and Naimgan Ord (4%), while 48% of national output comes from small suppliers.

New market entrants 

Despite being a relatively closed market, new entrants into the fluorspar industry have still disrupted the supply mix to some extent.

This is because these entrants have been able to supply fluorspar to China at a reduced rate, due to having lower production and transport costs than many established producers.

While Mexican and South African producers have wound down production in response to weaker demand and prices, Vietnam and Thailand have stepped in to cover the shortfall.

Vietnam

The Nui Phao project in Vietnam is owned by Masan Resources and began supplying the market with an installed production capacity of 200,000 tpa acidspar in early 2015. 

However, due to depressed demand, the company has yet to reach full capacity and in 2016 produced just under 170,000 tonnes, according to USGS data.

Nui Phao is a polymetallic-fluorite greisen-skarn deposit in northern Vietnam and Masan’s principal target product is tungsten concentrate with by-product offerings of bismuth, copper and fluorspar.

The company has been working on expanding its business by securing long-term sales contracts with customers through trader CMC Cometals, which has been offered exclusive marketing rights for the sale of Vietnamese acidspar.

Afghanistan
Afghan fluorspar producer Amania Mining is expected to start commercial production of acidspar in early 2018, the company told IM.

Amania Mining was established in 2010 and has been producing metspar since 2014 from its Baklud mine in Kandaha. New acidspar production is behind schedule, but the company is confident that it will start supplying the material next year.

Amania produced 60,000 tonnes metspar in 2016 and initial acidspar (min 97% CaF2) output is expected at 120,000 tpa, but production could be ramped up according to demand.  

"[Amania] may increase production based on our customers and market demand by adding installation of some more equipment and machinery in our plant to increase the production capacity," the company said.

It wants to offer an alternative to Chinese fluorspar and to take advantage of the "one-belt-one-road" railway initiative – a China-led infrastructure project to connect China and Europe by rail – which is being rolled out across central Asia within the next two to three years.

South Africa

In South Africa, Nokeng Fluorspar Mine Pty Ltd, a wholly owned subsidiary of SepFluor, is developing its Plattekop and Outwash Fan deposits, and is expected to have capacity of 180,000 tpa acidspar and 30,000 tpa metspar by 2019.  

It also has a third deposit, Wilton, as yet unexplored.

The average grade of Nokeng’s ore is 27% CaF2.

In 2016, Sepfluor decided to temporarily shelve construction of the chemical plant at the site due to low fluorspar prices, "a general decline in demand for commodities" and "weakening rand/dollar exchange rate, [which] resulted in negative impact on pricing for almost all commodities mined in the world". The company chose instead to focus on acquiring the funding for the Nokeng mine development. 

Canada

New acidspar capacity is expected to come onstream in October 2017 in Newfoundland, Canada from Canada Fluorspar Inc.’s 200,000 tpa St Lawrence facility. The company will mine from three pits: Grebes Nest Pit, Center Pit and Open Cut Pit.

It is expecting to produce 150,000 tonnes of fluorspar for 2018 and has the ability to produce an additional 40,000 tpa metspar, the company told IM in September.

The life of mine is at 40 years, with an average grade of 37% CAF2.

Canada Fluorspar, which is owned by US-based private equity firm Golden Gate Capital, is targeting the US, European and Middle Eastern markets, it told IM in 2016.

Other potential supply boosts

As well as new entrants to the market there are also projects which have, for market-related reasons, shut production, or reduced output in recent years. 

With the emergence of new supply from Vietnam and Canada, there are questions as to whether these projects will start up again. However, if Chinese supply does diminish on the back of environmental legislation then there may be room for more diversified supply.

In April 2016, Kenya’s only fluorspar-producing company, The Kenya Fluorspar Co., suspended operations at its processing plant in Kimwarer, western Kenya, in response to shrinking demand and low prices for fluorspar. The closure took more than 77,000 tonnes of its 100,000 tonne capacity off the market.

Although there were rumours that the company may resume production in the near future, a source close to operations said that restarting would largely depend on prices in Q4 2017.

*Conversions made September 2017

**Earnings before interest, taxes, depreciation and amortisation

Global warming

Concern over global warming has prompted several institutions and campaign groups to petition for bans on the use of some hydrofluorocarbons.

This year, the US Court of Appeal for the District of Columbia circuit overturned the US Environmental Protection Agency (EPA)’s 2015 ruling to ban a series of fluorochemicals (R404a, R134a, R407C, R410A) from use in new products from January 2021.

The EPA ruled under the Clean Air Act that a list of high global warming potential (GWP) fluorochemicals were classed as unacceptable and would need to be replaced with low GWP alternatives.   

However, the latest decision by the US court means that a series of fluorochemicals will no longer be banned and could hit sales of low-GWP alternatives.

Chemours, a US producer of low-GWP products such as HFO-1234yf for mobile air conditioning and Opteon XP40 for commercial refrigeration, said it may appeal the decision.

"In the US, CO2 Greenhouse Gas carbon credits remain in place which offer incentives to US automakers to transition to a low-GWP refrigerant. Currently, over 50% of the market has transitioned to HFO-1234yf, and we expect this transition to continue so that automakers can take advantage of the credits," said Chemours.  

According to the company, adoption of its low-GWP product HFO-1234yf in mobile air conditioning units is expected to double from 25m in 2016 to 50m vehicles by the end of 2017.

For commercial refrigeration, Opteon XP40 is expected to be adopted in 5,000 supermarkets and commercial refrigeration systems globally by the end of 2017, according to Chemours. 

Prices

Fluorspar producers outside China are planning to raise prices for minerals delivered in H2 2017 and 2018 to track higher Chinese spot prices, suppliers and consumers have told IM.

Following the widespread shutdown of production in China due to anti-pollution measures which have been rolled out since February this year, Chinese fluorspar spot prices have spiked to a four-year high. To put that in context, prior to February 2017, fluorspar prices hovered around five-year lows while supply far outstripped demand.

IM’s price for acidspar (min. 97% CaF2, wet filtercake) hit a  four-year high of $380-400/tonne on a FOB China basis on 8 June 2017.

In addition, an uptick in demand for refrigerants during the northern hemisphere’s Spring season has lent further support to prices.   

Fluorspar prices outside China have remained largely unchanged, as most consumers remained well-covered by long-term contracts, which concluded at the end of last year.

Few non-Chinese producers have been able to capitalise on the price uptrend, as they were committed to annual output volumes on long-term contracts for delivery in 2017.     

"We sold on an annual basis [and so] have not been in a position to negotiate during the year. That’s why we can’t profit from the increases that we have been seeing from China," one producer told IM

Due to existing commitments, many producers were not able to supply spot enquiries for delivery in H2. At least two producers confirmed to IM that they were sold out for 2017.

However, many producers are planning to raise prices starting from H2 2017, suppliers and consumers told IM. The increase is expected to be in a range of $20-40/tonne on top of existing

long-term contract prices in Europe and the US, suppliers and one consumer said. 

"We cannot overlook the situation of increased prices in China," the producer said. "We urgently need to increase prices [for 2018, by] at least $20-30/tonne more. Prices [are] catching $400/tonne in China. This is quite a big difference to Rotterdam prices. $20 is a laugh."

Annual 2018 contract talks

Meanwhile, many buyers and producers are beginning to look towards the annual contract negotiations in September-October, with buyers expressing concern about the anticipated global fluorspar price increase.   

"People are starting to realise they can take advantage of this situation in China with higher prices. I will not be surprised if prices start to accelerate outside China," one US-based consumer said in August.

"It was the same old news in the past five years; prices continue to slide down, the market has [now] become a lot more lively. I’m dreading the negotiations this fall. It will be more eventful than last year," they added.     

Buyers have received indications from producers of a potential increase of $20-40/tonne on top of 2017 contract prices, they told IM.

"[They] try to test the market to see what they can get away with. If accepted, they might push it higher," the US-based consumer said. 

Although fluorspar prices are widely expected to increase in 2018, some buyers are questioning the justification for higher raw material cost.  

"Demand is healthy this year. It’s still like 5% increase; it didn’t double. It doesn’t justify [fluorspar] price increase of [up to] 30%," the consumer said.