2017: The year of the supply squeeze

By Siobhan Lismore-Scott
Published: Thursday, 14 December 2017

If 2016 should be remembered with a shudder, then 2017 will be remembered as the year when it became harder to source minerals. The supply situation changed for many minerals in the markets that Industrial Minerals covers, not least because many producers were simply shut down by strict environmental laws in China, or found it harder to source materials due to demand-side challenges, consultant editor Siobhan Lismore-Scott writes.

Without doubt, the most significant effects on most minerals markets in 2017 arose from the policing of environmental legislation in China.

The necessary inspections and eventual shutdowns affected trade across China and created a supply squeeze in many markets, raising first domestic prices and then the prices in export markets.

The markets for magnesia, graphite, bauxite, alumina, fluorspar and titanium dioxide were all affected, but so too have been those for calcium carbonate, andalusite, rare earths and soda ash.

Those who continue to produce, process and ship materials have been able to do so by updating equipment, switching to cleaner fuel sources and securing raw materials supplies.

But the supply shortage is likely to continue into 2018 and will probably affect more markets.

Supply shortages meant that there were higher prices, and through 2017 prices in all the markets mentioned above moved upward.

In the lithium and frac sand markets, however, it was not the environmental legislation from China which forced prices higher; rather, it was a rise in demand for products.

The lithium markets have been experiencing a boom for several years now, since demand has risen from the lithium-ion battery sector. In 2017, prices rose - despite some new capacity coming online - and interest in the mineral peaked.

Industrial Minerals recorded this interest in the importance given to the new Battery Price report, which launched in October 2016, and in the record number of delegates who attended the 2017 9th Industrial Minerals Lithium Supply & Markets conference, held in Montreal, Canada.

The demand driver in lithum is reported to be the automotive sector. This year alone, several car manufacturers have either released a new electric vehicle model or announced their intention to do so.

In frac sands, there was a flurry of activity in Texas, as companies sought acreage in the Permian Basin, close to the expanding shale gas exploration sites.

Frac sand producers are attempting to keep costs down by exploiting reserves near these sites, instead of those in Wisconsin or Minnesota, as the high logistics costs make it uneconomical to mine sand and transport it.

The higher oil price has meant that exploration activity has ticked up, which has boosted all oilfield minerals markets, especially frac sand production – but not the production of ceramic proppants, which are said to be "dead in the water."

It is a slow start – and the market is not anywhere near the level of the "shale gale" of 2013-14.

As well as the reported supply squeeze, other interesting partnerships were made as several companies merged or were consolidated.

Graphite: A year in review

The year 2017 started with graphite prices ticking lower following the cancellation of a 20% tax on exports out of China.

At the end of 2016, China suddenly removed graphite and magnesia from the export tax list, creating confusion in the market. In the absence of any official government statement, producers, exporters and traders were initially uncertain as to whether the tax had actually been cancelled and whether such a move would have any impact on the already depressed market.

China-based graphite producers decreased their prices by 10-15% at the beginning of January, while uncertainty remained about the new policy.

However, the environmental tax which was also introduced at the end of 2016 started to take effect on prices shortly after the initial dip, meaning that they soon came back up as supply was squeezed.

The Environmental Protection Law was intended to tax companies that flout environmental measures and in January the Chinese government intensified its pollution crackdown.

The measure was announced on December 25, 2016, by Chinese President Xi Jinping and is due to come into effect on January 1, 2018, replacing the current pollutant discharge fee.

While at first glance the new law is similar to the system it replaced, it is more likely to be implemented as local governments can no longer intervene on the behalf of companies. 

Particular focus was given to updating and expanding the graphite and refractories industry in China.

In February, officials from Heilongjiang province announced that there would be a push to enlist graphite as the new pillar industry of the local economy for the sector to develop swiftly.

Also in February, Zibo’s municipal government, in China’s Shandong province, announced a plan to upgrade its refractory industry in its Zhoucun district by reducing capacity and steering existing production towards high-end and added-value materials.

Zibo will establish a high-end refractory industrial park in Wangcun town, with an annual capacity of up to 300,000 tonnes, and a dedicated logistics area, covering a total 2.37 km2.

The plan requires the district’s refractory capacity to be cut by 50% by the end of 2017 from 2015 levels. By 2020, it is expected that new products will account for over 80% of total production value.

Particular focus will be paid towards developing materials that follow a number of selected standards such as a low pollution footprint, long economic life, lightweight and functionalization.

Operations that fail the assessments will be closed by the end of June, the government said, and those who will not join in in the industrial park initiative will have their capacity capped.

In Deyang city, Sichuan province, one refractory company was forced to shut down while 12 others were asked to rectify their operations, the local government announced at the end of a month-long period of environmental inspections.

Government inspectors returned to Shandong for a second round of checks in May, making production at local graphite operations run intermittently, as limitations to acid-purification processes affected high-purity and plus mesh sizes in particular.

Renewed environmental controls in China’s Shandong province thus prompted an increase in graphite prices, with production of high-purity material and plus mesh sizes particularly affected by the inspections.

In Jixi city, graphite producers came together to announce a mutually-agreed increase in graphite prices, which they said was needed on the back of fast-rising costs affecting operations.

At least seven producers in Jixi stamped a jointly-issued price increase notice, formally announcing their allegiance and combined effort to capitalize on the tightening supply situation that has brought about the recent appreciation seen in graphite prices.

In another graphite producing area, meanwhile, mining activity ended earlier than expected.

"Graphite mines in Luobei are shut down due to mine safety standards failing to meet the guidelines required by the local safety inspection bureau. We don’t know when they will be reopened," one local producer told Industrial Minerals.

Imports from other countries into China increased. Between January and June, China imported 525 tonnes flake graphite from Madagascar. Last year, China imported 181 tonnes from Madagascar and 207 tonnes from Tanzania. This trend was expected to increase.

ThyssenKrupp and Tata

Towards the end of the year, steel majors Tata Steel and ThyssenKrupp agreed to set up a joint venture to combine their European steel activities.

Each company will have a 50% share in the new venture, to be called Thyssenkrupp Tata Steel, which would be Europe’s second-largest steel business.

The deal involves combining Tata’s plants in the Netherlands and the UK with ThyssenKrupp’s German assets. There are also plans for Thyssenkrupp Mill Services & Systems, a steel mill services provider, to be included in the joint venture.

Pushing up: Good signs for graphite

  • Tesla Motors said that it would be finalizing locations for Gigafactories 3, 4 and possibly 5 "later in 2017".
  • Monolithic refractory maker Calderys UK Ltd completed the acquisition of NG Johnson Northern Ltd, a UK-based company providing installation and engineering services to the refractory industry.
  • US refractory products supplier HarbisonWalker International (HWI) earmarked $30 million to set up an 80,000 tpy monolithic refractories production facility, which is expected to be operational by early 2018.
  • Imerys Graphite & Carbon completed the acquisition of Japanese battery anode producer Nippon Power Graphite (NPG).
  • Solvay AG acquired the Energain high voltage lithium-ion (Li-ion) battery technology from DuPont in February. 
  • Construction began on a new rechargeable battery factory in Germany as Daimler follows Tesla’s lead in expanding their electric car business vertically. The Kamenz project, expected to go online in mid-2018, will see an investment of some €500 million ($579 million) into quadrupling the existing site’s production.
  • All new models launched by Swedish carmaker Volvo will be partially or completely electric from 2019.
  • The Chinese city-level prefecture of Hegang plans to double its graphite ore mining production to over 3 million tonnes this year, according to a statement made in August. The municipal government expects to add new production worth over 6 million yuan ($892,794).

Fluorspar: A year in review

There was a shaky start to the year for the fluorspar markets as prices remained low on lacklustre demand and an oversupplied market.

Things were so bad that one developer, Tertiary Minerals, admitted that it was looking to other markets to make profit, because of poor global market conditions in fluorspar and difficulties with the development of its Swedish fluorspar project.

By March the situation was very much changed, however. Fluorspar prices within China had started to rise as downstream industries such as steel, aluminium fluoride and hydrofluoric acid started to perform better when the steel industry recovered.

Despite this uptrend for China-origin fluorspar, prices elsewhere in the world remained largely stable as consumers were well covered by long-term contracts. Amid improving demand and the supply cuts in China intended to reduce pollution levels, however, some were optimistic of a recovery following six years of depressed demand and falling prices.

Anti-dumping and legal issues

The United States Department of Commerce imposed an anti-dumping duty on a number of refrigerant materials imported from China with effect from March 1, 2017.

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

Anti-dumping duties ranging from 148.79% to 167.02% were imposed on China-origin R-134a imports into the US.

"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 consumer told Industrial Minerals.

In August this year, the US Court of Appeals for the District of Columbia circuit overturned a ruling by the country’s Environmental Protection Agency (EPA) in 2015 that would have banned a series of fluorochemicals (R404a, R134a, R407C, R410A) from use in new products, to begin from January 2021.

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

As a result of the EPA ruling, many companies including Chemours and Honeywell researched and developed technologies to produce hydrofluoro-olefin (HFO) to replace hydrofluorocarbon (HFC) products.

Chemours and Honeywell said that they intended to challenge the ruling.

Production cuts bite

As well as a recovery in demand from the steel sector, Chinese prices were also climbing on curtailed supply, as the environmental legislation took hold. This was seen in the process for both fluorspar and in aluminium trifluoride (AlF3) in April.

AlF3 is used as a flux for aluminium metal production, and many producers worldwide source the raw material from China. But production in key producing regions in Southern China was severely reduced due to anti-pollution inspections, which led to the closure of plants that did not meet environmental standards.

In April, acidspar spot prices increased in Europe after months of stability, when producers started to raise their offers following the uptrend in China. Some argued, however, that the spot market was not representative because it accounted for a small proportion of the overall business volume, which is largely covered by annual contracts.

New supply

This year saw a new project come online. Canada Fluorspar opened its 200,000 tonnes per year St Lawrence mine, in the province of Newfoundland, in October. It is an open-pit mine with 30 years’ operation capacity and potential for 40 years of resource development.

Afghanistan fluorspar producer Amania Mining is expected to start commercial production of acid-grade material (acidspar) in early 2018.

The company was established in 2010 and has been producing metallurgical-grade fluorspar (metspar) since 2014. The new acidspar production schedule was later than the initially planned timeframe.

South African fluorspar producer SepFluor, meanwhile, expects to achieve full production in 2019.

Industrial Minerals Fluorspar 2017 Conference

  • Producers of fluorspar and hydrogen fluoride (HF) face challenges related to declining ore quality, Thomas Dahlke of BUSS ChemTech told delegates at the 2017 conference, held in Amsterdam in October.
  • High-quality ore reserves are being exhausted while newer resources are smaller in size and are often located in politically unstable regions, Dahlke said.

Guillermo Federico Gallegos, commercial director at Mexichem, identified a number of trends:
  • The scarcity of metspar material.
  • Looking at consumption patterns, global metspar volumes have reduced by 19% since their peak in 2013; the estimated volume for 2016 is around 2.3 million tonnes, and the prediction for 2018-22 is growth of around 3% per year.
  • Metspar is no longer only about the product.
  • Metspar usage in steel is becoming more focused on speciality and/or stainless steel products, so customers increasingly require more stringent metspar characteristics, such as high quality and minimum batch-to-batch variability of product.
  • Customer’ logistics are also evolving, especially in Europe and the US, where they want to ensure the sustainability of their raw materials and are ordering smaller amounts more frequently, rather than bulk shipments.
  • Any other applications for metspar will require strong technical expertise.
  • New applications for metspar, such as using as a flux with the cement raw materials in the rotary kiln in order to speed up the calcination process, may not be as swift as some might hope.
  • Chinese aluminium fluoride production is set to fall by 6% in 2017 after shutdowns and the consequences of regulatory tightening, Cassie Yan, manager of Do-Fluoride Chemicals (DFD), said. Yan expects Chinese output to fall to 670,000 tonnes this year from 710,000 tonnes in 2016.
  • Fluorspar producers in Canada, Vietnam and South Africa are ramping up output at the time when Chinese supply has been curtailed as a result of environmental legislation.
  • Although China remains a major global supplier of fluorspar, with a downstream focus that will continue to rationalize supply, Vietnam’s proportion of total Southeast Asia supply volumes increased from 0% in 2012 to 77% in 2016; while the remaining 23% largely came from Thailand, according to Masan Resources.

Iodine: A year in review

Iodine prices continued their march downward through the first half of 2017, with some producers in Chile producing material at prices close to cost. 

Prices are far from the peak reached in March 2011 of $60-95 per kg, and have been a major concern among producers and consumers since the global iodine market (crystal, 99.5% min, drums) crashed to $18.50-21 per kg in November 2016. 

The price  in 2017 ranged between $20.50-22.00 per kg (contract) at the beginning of the year and $22.00-23.50 per kg  towards the end of 2017. 

Within the low price environment, shut-ins took place. In Chile, which accounts for the majority of global iodine production, suppliers were producing at levels close to cost at the start of the year. 

However, by the second half of the year, the market had started to pick up.

Fines for SQM

In January, Sociedad de Quimica y Minera (SQM), a major producer of lithium, iodine and potash, was ordered to pay fines amounting to more than $30 million in an attempt to settle a long-running investigation by authorities in the United States into a political payments scandal.

The US Department of Justice (DoJ) and Securities & Exchange Commission (SEC) will receive penalty payments of $15m and roughly $15.5m, respectively.

These will be "in relation to the investigations by such agencies of facts related to payments to providers and entities that were tied to persons with political exposure between 2008 and 2015," SQM said in a letter to the Chilean Superintendent of Securities and Insurance (SVS), dated January 13 and signed by company chairman Eugenio Ponce.

Things quickly looked up for the Chilean producer, however, as its iodine sales increased over the course of the year while other producers shut in their production.

Cosayach decreased its production by 40% in March, reducing iodine production to 250 tonnes per month from 400 tpm previously. This came weeks after ACF Minera SA laid off 200 employees from its Lagunas operation in Northern Chile in order to reduce output.

The amount of supply which was taken off the market resulted in a small price uptick in the second half of the year, although it still did not reach the pre-crash levels seen in 2016.

New supply

SQM received approval from the Servicio de Evaluación Ambiental (Chilean Environmental Agency) for its Orcoma iodine project in June.

The plant will have capacity for 2,500 tonnes per year of iodine, and evaporation ponds will produce 320,325 tpy of salts rich in nitrates. No timeline has been given for production to begin.

In the US, iodine- and halogen-based speciality chemical derivatives company Iofina confirmed in November that the construction of its IO#7 plant is progressing on time and within budget.

Iofina expects to meet or exceed the upper end of its second-half 2017 production forecast of 225-240 tonnes of crystalline iodine due to continued operational improvements at all Iofina production plants.

These have included increased efficiency due to less downtime and better process controls, the company said.
Iofina expects that it will achieve its yearly output target of 475.5 tonnes of crystalline iodine for 2017.

Lithium: A year in review
In some quarters, lithium carbonate – the material used to make lithium-ion batteries and derived from either hard rock (spodumene) or brines – is referred to as white gold.
It is not surprising, then, that the current tally of junior producers hoping to bring a lithium project online stands at 300.

Indeed, supply is still one of the most hotly debated topics in the industry. No one now doubts that new supply will be needed – the nay-sayers have long been silenced on that topic. But there is some dispute about where the new supply will come from.

Through 2017, the imbalance between supply and demand was as prevalent as it had been over the previous two years. Prices remained strong, much to the investors’ relief – a softening of the current market prices remains one of the investors’ and juniors’ greatest fears, as it could threaten the development of projects.

Although the number of developing projects is large, the know-how of the lithium industry remains underdeveloped. Producing lithium carbonate or hydroxide requires technical knowledge, an understanding of the challenges facing the market and perseverance.

Traditional producers such as SQM, Albemarle, FMC, Ganfeng and Tianqi, among others, have sought to increase their total output and production capacity to fulfil current market demand (see below).

To secure raw materials supplies, several of the traditional producers have engaged in offtake agreements with junior lithium producers and have started to participate in their projects to speed up their development processes.

Fanning the flames

Concerns regarding the safety of lithium-ion batteries have continued. At the start of the year, the United States consumer safety watchdog called for heightened safety regulations on lithium-ion batteries after details were released by Samsung Electronics Co Ltd, outlining what had caused a number of its Galaxy Note 7 smartphone devices to overheat and catch fire in 2016, prompting two recalls and a cessation of production.

In April, a train carrying electric vehicle lithium-ion batteries exploded near the US city of Houston on its way to Los Angeles, where the batteries were being shipped for recycling.

Company news

Chile’s state-owned Corporación Nacional del Cobre de Chile (Codelco) opened a bidding process for the development of lithium projects at its two salt flats, Pedernarles and Maricunga, in northern Chile. By the end of the year, it had still not announced the winner.

GFL International Co Ltd (Ganfeng) agreed to invest $174 million in the Lithium Americas Corp (LAC) Cauchari Olaroz project in Argentina to secure an offtake agreement and to ensure the project’s development.

The deal sees Ganfeng, the largest integrated lithium producer in China, picking up 75 million common LAC shares for a total of $49 million, as well as the right to purchase as much as 70% of LAC’s share of Cauchari’s Stage 1 lithium carbonate production at market prices.

Albemarle Corp, the world’s largest producer of lithium, revealed that it will pay royalties of as much as 40% to Chilean state economic body Corporación de Fomento de la Producción (CORFO) under its agreement to expand lithium production in the country.

The joint venture between Albermarle and Tianqi Lithium Corp, Talison Lithium, has approved the expansion of lithium concentrate production at its Greenbushes spodumene mine in Australia.

The expansion is intended to more than double lithium carbonate equivalent (LCE) capacity at Greenbushes from 80,000 tonnes per year to more than 160,000 tpy. Commissioning of the expansion is expected to begin in the second quarter of 2019.

Chinese lithium producer Tianqi Lithium Corp said that it will not proceed with the exercising of an option that would have seen it acquire a 20% stake in Rockwood Lithium GmbH, a subsidiary of US counterpart Albemarle.

Albemarle and Tianqi entered into a deed of termination in relation to the planned share purchase in February.

Electric vehicle (EV) producer Tesla Motors Inc commenced lithium-ion (Li-ion) battery cell production at its gigafactory in Reno, Nevada, US, in January.

Tesla said that, by 2018, it intends to produce 35 GWh per year of lithium-ion battery cells, nearly as much as the rest of the world’s battery production combined.

It then revealed that it would be building three further battery gigafactories, but did not say where.

Japanese car manufacturer Toyota announced that it has completed the sale of its stake in Tesla Motors following the termination of the contract at the end of 2016, ending the previous partnership between the companies.

In 2010, Toyota and Tesla agreed to work jointly on the manufacturing of electric vehicles, with the Japanese company acquiring 3.15% of Tesla’s outstanding shares, valued at $40.5 million (¥4.50 billion).

Nemaska Lithium received a lump-sum payment of $10 million from FMC Corp as part of a previously-agreed supply deal for lithium carbonate.

Under the amended agreement, Nemaska Lithium will start to supply FMC no later than April 1, 2019, and had to supply lithium carbonate samples to FMC for qualification in 2017.

Breaking with the delivery obligations agreed in the supply agreement will force Nemaska Lithium to return the full $10 million payment plus an agreed penalty.

Magnesia: A year in review

At the beginning of 2017, the magnesia market was on shaky ground. Prices slipped lower due to the cancellation of the export quota system at the end of 2016, leaving some to be openly bearish about the year ahead.

This sentiment did not last long, however. As the year marched on it became apparent that the environmental legislation which was announced in 2016 was going to be more far reaching and stricter than previously thought.

China is the world’s biggest magnesia producer and production is focused in Liaoning province. China’s main magnesia-producing region is currently split between two places – Dashiqiao in Yingkou, and Haicheng in Anshan.

 Dashiqiao has less magnesite resources but more processing companies, while Haicheng has larger magnesite resources and primary processing companies. 

Inspections started in Liaoning province, Anshan city, in January. A total of 64 local companies were covered and four inspection teams from the Anshan municipal government announced a number of irregularities found at Youyan Wanyou Mining Company, Shuangli Mining Company and Wanning Mining Company.

The officials said similar issues related to environmental practices and pollution levels were found in several other companies that were inspected, leading to fines being issued on site and operations being immediately shut. 

Haicheng city, under the municipal management of Anshan, completed inspections of all local magnesia companies, according to Anshan Bureau of Environmental Protection. There are 95 companies operating 1,700 magnesia kilns in Haicheng. Of these, 142 kilns were shut in January.

Then, in March, the Haicheng government announced that production would stop at all major magnesia companies, because their environmental objectives had not been met on time and they were now operating without permission, greatly damaging the environment.

The ban affected 527 kilns in 34 companies — including 383 caustic calcined magnesia (CCM) kilns, 42 dead burned magnesia (DBM) kilns, seven fused magnesia (FM) kilns, 52 middle-class magnesia kilns, 37 high-purity magnesia kilns and six tunnel kilns. 

Mining restrictions

In a double blow, and adding to the problems resulting from the environmental inspections, Haicheng was also reportedly considering restrictions on magnesite mining activities, contacts in Haicheng told Industrial Minerals in March. Producers were understood to be facing restrictions on selling material outside their local area – even to nearby Dashiqiao city. 

By May, almost all magnesia producers in Haicheng and Dashiqiao were shut amid ongoing environmental controls; and while European magnesia prices were stable market participants are wary of impact to the market should the situation in China persist.

As expected, magnesite mining was also severely restricted because no dynamite was being sold.

Fused magnesia (FM) was, by May, no longer available in China’s Liaoning.

In Deyang, three refractories manufacturers based in the city carried out an upgrading process of local operations to comply with the stricter environmental norms.

One refractory company was forced to shut down while 12 others were asked to rectify their operations in Deyang city in China’s Sichuan Province.

Elsewhere in the world

Brazil and the European Commission meanwhile approved the proposed acquisition of Brazilian refractory maker Magnesita Refratários by Austria’s RHI, but on condition that the latter divest its dolomite business, the authority said in June (See pp31-32).

In Europe, prices of European fused magnesia (FM) surged to exceed the $1,000 per tonne mark in June, following repeated upticks in Chinese prices and extremely tight availability of material reflecting on international demand flows.

While the European magnesia market as a whole somehow managed to stave off the rapid price uptrend that was seen in China since the second quarter, the widespread shortage of fused magnesia has now taken the price of the commodity up by over 50% against earlier levels.

By September and at the UNITECR conference held in Santiago, Chile, delegates heard that the supply tightness affecting magnesia markets is expected to persist for the foreseeable future.

Sources were adamant the issues of supply shortage and price volatility that have been seen in China over 2017 will continue to bite, they told Industrial Minerals at the event.

Smuggling ring

Customs officials at Huangpu Port in southern China announced the discovery of a magnesia smuggling case involving some 15,000 tonnes of material at the start of the year.

It is alleged that the material was smuggled through Huangpu port and Nansha port in Guangzhou, and Shanghai port, between June 2014 and October 2016.

The magnesia cargo was being exported under other product labels, including calcium carbonate, barite and flatting agent. In this way, the sellers bypassed the required export certificate for magnesia products, keeping prices lower than they would otherwise be.

R&D in Yingkou

Yingkou’s municipal government, in China’s Liaoning province, announced a wide-ranging plan to promote supplier-side structural reforms for seven local industries including magnesia, aiming to cut overcapacity, pollution and to foster R&D in new materials.
Yingkou plans to boost the new materials sector for magnesia with the aim of developing new refractory products based on the mineral.


To deal with the overcapacity problem, Yingkou plans to speed up the process of closing backward capacities that have high pollution and high energy consumption levels.

Additionally, the city wants to impose output control on all magnesium production. As such, the annual mining volume of magnesite will be limited to 5 million tonnes.

The number of magnesite companies will be consolidated to 20 in 2017 and further reduced to 17 by 2020. The proportion of non-refractory use of magnesium products in China is expected to increase to over 20% by 2020.

New capacity will be strictly controlled, especially for steel, cement, flat glass and electrolytic aluminium.

Pollution control

As regards pollution controls, an online monitoring system will be installed to assess pollution levels and energy consumption of the local magnesia industry.

By 2020, the target is to reach a 60% recycling rate of industrial solid waste.

TiO2: A year in review

The year started with a bleak outlook after Iluka Resources told investors during an earnings conference call that "we’ve entered 2017 with less volume contracted" after foreseeing price increases in 2016.

Matthew Blackwell, head of mineral sands marketing, warned that "sales in 2017 compared with 2016 will be lower, and lower again in 2018". 

Mineral sands miner Base Resources said it expected further improvements in ilmenite prices throughout 2017 due to an improving TiO2 market. It also expected disruption to ilmenite exports from India and lower ilmenite production in China’s Sichuan province due to environmental inspections to buoy prices.

"Base Resources’ expectation is for rutile prices to start trending upwards during 2017," the company said.

While ilmenite prices subsequently tracked higher, they fell back in July although they remained above 2016 levels.

Supply disruption

Environmental legislation in China hit several small producers, causing supply disruptions, and there was also a ban on heavy mineral sand mining in Tamil Nadu, India.

Elsewhere, the closure of Sibelco’s Stradbroke Island became a concern, especially for welding producers, which rely on rutile from the mine. The operation’s shut down will take around 35,000 tonnes of rutile from the market by 2020.

TiO2 company price hikes

Cristal, Huntsman and The Chemours Co all raised prices over the year by $225-250 per tonne.

Away from the western producers, Chinese TiO2 producers also raised their prices over the year.

Ishihara Sangyo Kaisha Ltd, one of Asia’s largest TiO2 producers, announced in March that it would raise its TiO2 price by $150 per tonne from April 1.

Lomon Billions announced a TiO2 price rise at the start of the year, citing the rapid price increase of source materials and logistics costs. The company subsequently raised prices a further six times. 

Other companies quickly followed suit.

Luoyang Yuxing Chemical Co and Luohe City Xingmao Titanium Industry Co raised prices 700 yuan tonne for chloride route rutile type TiO2 for the domestic market and $100 per tonne for the export market.

Yunnan Metallurgical Xinli Titanium Industry Co raised its chloride route TiO2 prices by 1,000 yuan per tonne for the domestic market and $150 per tonne for the export market.  

CNNC Huayuan Titanium Dioxide Co, Anhui Annada Titanium Industry Co, Guangxi Shunfeng Titanium Industry Co, DoGuide Group, Fangyuan Titanium Industry Co, Dawn Group, Guangdong Huiyun Titanium Industry Corp, Yunnan Xinli Nonferrous Metals Co, Panzhihua Iron & Steel Group Titanium Industry Co, Lomon Billions and Panzhihua Dongfang Titanium Industry Co raised prices by 500-1,000 yuan per tonne in March.

Lomon Billions suggested the market would continue to rise, citing increased demand from developing countries such as India, Brazil and South Africa due to rapid development of infrastructure as well as continued demand growth from China.

Company movements

If it was an interesting year in terms of pricing, it was also a year when many companies made bold moves either to consolidate or earn a greater market share of the TiO2 business. 

Cristal deal

In February, US-based TiO2 producer Tronox Ltd signed an agreement to buy Cristal’s TiO2 business for $1.67 billion.

Tronox sold its Alkali business, which includes soda ash production, to Genesis Energy in September as part of the deal.

The combined company will operate 11 TiO2 pigment plants in eight countries, with total capacity of 1.3 million tpy, as well as titanium feedstock operations in three countries with capacity of 1.5 million tpy. Tronox described the future operation as "the world’s largest and most highly integrated TiO2 pigment producer".

The acquisition, unanimously approved by the boards of both Tronox and Cristal, is subject to approval by Tronox shareholders as well as regulatory approvals. The transaction is expected to close before the second quarter 
of 2018.

Enter Venator 

In February, Huntsman Corp said it would spin off its pigments and additives business into a separate company, Venator Materials Corp.

Venator comprises two main business groups: titanium dioxide, which will produce TiO2 pigments; and performance additives, which includes iron oxide, barium sulphate, complex inorganic coloured pigments, zinc sulphide, metal carboxylate driers, timber treatment chemicals and water treatment chemicals.

In May, Huntsman and Clariant announced a merger by the end of 2017, combining two speciality chemical companies, with interests in a range of industries, including pigments such as titanium dioxide, as well as bentonite, into a new company called HuntsmanClariant.

The new company was expected to deliver sales of around $13.2 billion and adjusted Ebitda of $2.3 billion, valuing the company at around $20 billion.

But the deal was scuppered by activist investors who acquired a sizable stake in Clariant, suggesting that the best value for shareholders was away from the Huntsman deal.

Lomon Billions

Lomon Billions acquired ilmenite producer Panzhihua Ruierxin Co for 190 million yuan to secure raw material supply.

AkzoNobel and PPG Industries Inc

Dutch paints and coatings manufacturer AkzoNobel rejected unsolicited, non-binding and conditional takeover offers from US paints giant PPG Industries Inc in March.

PPG made three bids for the Dutch company. The last, made in late April, valued the European paint company at €26.9 billion (£22.8 billion).

Akzo rejected it, saying it undervalued the company, and accused PPG of a "lack of cultural understanding of the brand."

Akzo then put forward an alternative plan to the merger, promising to give shareholders €1.6 billion. It also said it would spin off its chemicals subsidiary, which represents a third of sales and profits.

This was to placate shareholders, namely Elliot Advisors, the largest shareholder, which repeatedly tried to unseat Akzo chairman Antony Burgmans.

Investors, led by Elliot, were angered by the rejection of a takeover bid from PPG early in 2017. Akzo at the time cited the forecast €100m of earnings among reasons to turn down the offer and suggested its spin-off plan offered better value.

A truce was agreed in August - the company moved forward with plans to spin out its speciality chemicals segment from its coatings business.

Oilfield minerals: A year in review

After an extremely bearish two years in the oilfield minerals markets – defined here as the group of minerals that find their main use in the oilfield services industry, chiefly in drilling oil wells or in extracting shale gas through hydraulic fracturing (fracking) – things started to look up in 2017.

The recovering oil price meant that the US was interested in fracking once again and US frac sand demand was forecast to rise to at least 70 million short tons in 2017, compared to 34 million tons in 2016.

However, as the oil price did not recover by a significant amount, it was indisputably a race to the bottom for frac sand producers this year, as demand grew for cheap, basin frac sand.

It has been a take of quantity over quality, as frackers strive to get as much sand as possible into wells.

Looking ahead, US Silica chief executive officer Bryan Shin forecast a continued rise in US frac sand demand, to as much as 90 million short tons in 2018 thanks to "continuing improvement in North American well economics, partially driven by greater proppant usage."

Basin sand rush

Investments were made by several leading sand producers in new frac sand mines. The most notable examples were those in the Permian basin, where Hi Crush Partners LP, US Silica and Unimin Corp pushed for new capacity in the Texas play, after oilfield activity in the state boomed.

The Permian basin is attractive because of its proximity to the massive oil and gas fields in Texas. More than two thirds of the cost of delivered frac sand from Wisconsin, the traditional heartland of sand production, to a Texas wellhead consists in freight cost.

In-basin production has the potential to reduce freight costs, delivering a more competitive product at a time when margins are shaved paper thin due to low oil prices.

In February, Hi-Crush paid $275 million for Permian Basin Sand Co, and its 3 million short tons per year capacity.

This was followed in June by US Silica announcing a $225 million investment, to establish 4 million short tpy of capacity in the basin. In September, the company added another acquisition to the list, when it announced it would build a second frac sand mine in the Permian basin.

The mine is expected to have capacity of some 2.6 million short tpy, with production commencing in March 2018. 

Frac Sand 17 

At this year’s IM Frac Sand 2017 Conference, in Denver, US, delegates heard how ceramic proppants were "dead in the water" as raw sand wins out.

"It’s clear, the data is in: today raw sand is the choice," Joel Schneyer, managing director at banking services provider Headwater MB, told attendees.

One attendee told Industrial Minerals that ceramics were still being used in fracking, but only as a way of clearing stocks accumulated by the industry when demand was expected to be higher.

Elsewhere, new US regulations on dust exposure for workers are opening up opportunities for equipment and sand producers servicing the fracking industry, delegates heard. Regulation on silica dust exposure for workers came into force in September for construction companies.

Elsewhere in the world

While frac sand opportunities were clear in the US, elsewhere the picture was more muted.

This was true not just of frac sand markets but of the overall gas and oil market. The Baker Hughes Rig Count, released every month, showed that while activity was creeping up in the US, it was stagnating in other parts of the world. 

In January, a new study published by trade body UK Onshore Oil and Gas (UKOOG) showed that the development of 400 well pads in the UK could reduce its dependency on gas imports by 50% with a limited impact on countryside areas. 

However, this did not translate into public support or more wells being taken on. In fact, sentiment around fracking was cool in 2017 – a survey* undertaken by the Business and Energy Department revealed that public support in the UK for fracking had fallen to 16%, from 21% in the previous year.

Also, at the beginning of the year, the Scottish government launched a public consultation on the extraction of unconventional oil and gas in the country.

Scotland placed a moratorium on hydraulic fracturing (fracking) in January 2015, while the government investigated the potential impacts of the practice.

Over the year, the Scottish government carried out a comprehensive period of evidence gathering, public engagement, and dialogue on the issue.  This culminated with a four-month public consultation, "Talking 'Fracking’", which closed on 31 May and received over 60,000 responses.

On October 3, 2017, in response to the publication of the consultation responses, the Minister for Business Innovation and Energy made a statement to the Scottish Parliament on the future of unconventional oil and gas.  

The statement set out that the Scottish government does not support the development of unconventional oil and gas in Scotland.

Indeed, in August, BHP warned that fracking opportunities "do not exist" outside the US.

The comments were made as the Anglo-Australian mining giant put its shale oil business up for sale just six years after it made a surprise entrance to the sector.

Speaking to investors, BHP boss Andrew Mackenzie suggested that the $20 billion investments made back in 2011 had been overambitious.

"The shale acquisitions were poorly timed," Mackenzie said. "We paid too much and the rapid pace of early development was not optimal."

*2,000 people polled

Headwinds for frac sand
  • Wisconsin state Senator Kathleen Vinehout introduced a package of bills in July to increase environmental oversight of the frac sand mining sector, and to restrict the opening of new mines. A package of nearly identical bills failed to pass in 2016.
  • US frac sand usage may be easing for the first time in years, Halliburton’s CEO Jeff Miller said in a conference call with investors in June.
  • "For the first time in years, in the second quarter we experienced our first decline in average sand pump for well," Miller said. "We believe current sand price levels have encouraged operators to optimize their completion design using more science as opposed to simply maximizing sand and trade for increased production," he added.
  • A small lizard, the dunes sagebrush lizard, once again threatened to be a large headache in the rush for Permian Basin frac sand development.
  • "We believe Texas mine opportunities won’t come without its obstacles, including the following, access to wire, roads, electricity, trucking and labor and potential serious environmental issues and questions relating to the sagebrush lizard and its habitat," Smart Sand CEO Charles Young said, in June.

Bauxite and alumina: A year in review
The main non-metallurgical bauxite markets, such as refractories, abrasives and brown-fused alumina (BFA), source their materials in China, where the repeated shutdowns of industrial operations imposed by Beijing due to high smog levels created low availability of product through the year.

Local companies attempted to work through their stocks, but by the end of January, these were depleted.

And supply problems intensified from there. Numerous bauxite and fused alumina plants that did not meet environmental standards were shut down and the operating rates at many of the remaining producers were restrictedThis severely disrupted bauxite and fused alumina output in China, which affected supplies to many refractories in Europe. 

Not only were there stoppages on environmental grounds, but also Chinese white fused alumina (WFA) producers that did meet environment standards were increasing their sales volumes to the domestic market to meet local demand, leaving less material available for the export market.    

The ongoing supply disruption in China pushed many European buyers to seek alternative supply to meet their demand. 

In February, European WFA spot prices jumped due to higher freight rates and production costs.

The disruption also affected the brown fused alumina (BFA) market. Chinese output was hit when the Chinese government started to clamp down on polluting plants in Henan – a main hub of fused alumina production in China. 

Although some production returned to normal in early-to-mid-February following the end of Chinese New Year holiday, many plants that did not meet environmental standards have not reopened, according to market sources.

Further environmental clampdowns

Concerns built up of a renewed wave of anti-pollution checks at the end of February, after the Tianjin government announced further plans to "greatly enhance" the city’s environment in 2017.

As a result, producers rushed to produce as much as possible before any potential disruption, one Tianjin-based trader told Industrial Minerals.  

Fears were realised, when, in March, a wave of mass shutdowns was imposed again on fused alumina and bauxite production facilities in parts of China, following air quality checks by the Ministry of Environmental Protection.

Elsewhere in Shanxi, the local government banned coal-fired energy generation in the provincial capital city of Taiyuan as part of an anti-pollution campaign on March 1.   

Most refractory minerals’ production in China is traditionally powered by coal, but under China’s natural gas policy, industries were only to operate using the natural gas.    

As a result, most bauxite calcining operations to make refractory-grade bauxite ceased.

Tianjin processing plants

As part of the ongoing environmental controls, processing plants located in Tianjin port were forced to relocate in July. Industrial Minerals heard of eight crushing and processing plants around Tianjin port that were forced to relocate, many of which supplied global refractory makers and Europe-based traders.  

Major bauxite supplier China Mineral Processing’s (CMP) plant in Tianjin (see p17) was not affected as the facility met required environmental standards and received government approval to operate.

Imports grow

There was much speculation at the 23rd Bauxite and Alumina conference in Miami, the United States, in March over the extent that China’s reliance on imports would grow.

Even without the pressure of the environmental controls, delegates argued that maintaining the required purity standards of bauxite raw material is becoming harder within China since best-quality ore in known local resources was becoming scarcer after many years of extraction.

This was reflected in the increased need for volumes from outside the country. While China has steadily imported bauxite (around half of national demand is covered by imports), sources claim the ratio of local resources vs imports could change as domestic supply declines.

Australia is expected to strengthen its leading position as supplier of alumina and bauxite to China in the coming years, delegates heard.

Just over half (56%) of all alumina imports into China were shipped from Australia in 2016, Andrew Wood, group executive for strategy and development at Alumina Ltd, told delegates during a presentation.

Monolithics seen as a growth area

This year saw the growth of interest in monolithics, with several refractories companies making moves into this field, or expanding (see box).

"Monolithics are a growth area, and the new plant will enable us to further elevate product quality and consistency," Carol Jackson, senior vice president and general manager at HarbisonWalker International, said. "From a broader perspective, the new plant represents an overall strategy to reinforce our […] position in refractories."

This was a position which was emphasized by John Maxwell, general manager at Calderys, during the 23rd Bauxite and Alumina conference.

Company News in 2017
  • In January, Imerys announced it would divest its newly-acquired Alteo ARC La Bâthie and Beyrède fused alumina operations into an independent business as part of the asset acquisition condition set by the European Commission.
  • Also, in January, Orbite Technologies received its first two customer orders of high purity alumina (HPA) from its newly-opened facility in Cap-Chat, Quebec. However, in April Orbite announced it had filed for a stay of proceedings on creditors under the Bankruptcy and Insolvency Act.
  • Monolithic refractory maker Calderys UK Ltd completed the acquisition of NG Johnson Northern Ltd in February, a UK-based company providing installation and engineering services to the refectory industry.
  • US refractory products supplier HarbisonWalker International (HWI) earmarked $30 million to set up an 80,000 tpy monolithic refractories production facility in Ohio, which is expected to be operational by early 2018.
  • German specialty materials and flame retardants supplier Nabaltec AG acquired total ownership of its US-based subsidiary, Nashtec LLC.
  • Imerys received the "unreserved approval" of the European Commission on its proposed acquisition of French specialty cement maker Kerneos.
  • Alteo increased its specialty alumina products prices in September due to rising raw material costs, citing higher freight rates, and bauxite, caustic soda and energy prices.