Rising fear of nationalization, increasing costs for mineral sand producers in India

By Cameron Perks
Published: Monday, 22 October 2018

The cost of exporting mineral sands from India has increased with the release of new standard operating procedures in the country.

Indian mineral sand exporters will incur a higher cost of production beginning from this week, as part of a broader "canalization" scheme, which many participants say is, in practice, the partial nationalization of the industry.

The new standard operating procedures, which were distributed to Indian mineral sand exporters on Thursday September 6, explain that producers are now required to submit details such as the mineral being sold, a foreign buyer’s name, the selling price, quantities and a profile of the selling company to government-owned corporation IREL when exporting mineral sands.

Additionally, samples are required to be submitted, alongside reports of petrological and chemical analysis of the mineral "or any other analysis as deemed fit" to IREL. A "service charge" to IREL is then incurred, calculated as 3% of the fob invoice value for bulk and containerized shipments.

The service fee, the cost of additional sampling and analysis, as well as the effort now required to submit extra paperwork will all contribute to increasing costs for mineral sand producers in India, which may in turn result in higher prices for ilmenite produced in India.

Unless costs are absorbed by the producer, higher prices from India may be supporting prices in China, which have been depressed in recent weeks due to a number of factors. Fastmarkets IM assessed the price for ilmenite concentrate, 47-49% TiO2, cif China at $160-180 per tonne on September 27, down from $185-195 per tonne on August 16.

The new standard operating procedures were released to clarify the confusion caused by the Indian Department of Commerce’s unexpected announcement on August 21 that it had amended its export policy for heavy mineral sands, which stated that all material is to be moved or "canalized" through IREL.

These two announcements have led some industry participants to believe that this is, in practice, the partial nationalization of the industry.

"For the Indian mining industry and its customers, it raises the larger spectre of dramatically increased sovereign risk," Grant Smith at Australasian Minerals and Trading Pty Ltd told Fastmarkets IM.

Smith notes that this change in regulation, "overthrows the Beach Sands Policy announced in October 1998, which has governed the industry for the past 20 years. Under this policy, which freed the industry from government control, mineral sands exports quadrupled and the Indian ceramic and welding electrode industries expanded rapidly with easy access to domestic sources of zircon and leucoxene/rutile. When these benefits are combined with the foreign exchange earnings and import substitution by domestic product, it proves the worth of private participation in the industry."

Prior to the standard operating procedure announcement, industry participants sought clarification on issues such as warehousing logistics, transport to port, loading and transfer of ownership, fob versus cfr shipping, quality standards and dispute resolution.

While not all of these issues are addressed in the newly announced standard operating procedures, it does show that the Indian government is serious about implementing this new policy.

Export policy changes

India’s Department of Commerce announced on August 21 that it had amended its export policy for heavy mineral sands, stating that all material is to be "canalized" or moved through the government-owned corporation Indian Rare Earths Ltd (IREL).

The announcement named ilmenite, rutile, leucoxene, zircon, garnet, sillimanite and monazite as the minerals affected and has classified these as "rare earth compounds", despite only monazite having the ability to contain rare-earth elements.

Market participants directly involved in the local industry have told Fastmarkets IM at the time that exports will continue to be disrupted, "until clarification is obtained on the new method of exports."

While overall export volumes from India are unlikely to change significantly, it is unclear if the announcement means mining will resume in the south Indian state of Tamil Nadu, where mineral sand production is currently shutdown.

In 2017, around 40,000 tonnes per month of high quality, highly reactive ilmenite was removed from the market when all mineral sand mining operations in Tamil Nadu were shutdown by the local government in response to allegations of illegal mining.

The timing of the policy change had some market participants speculating that it has come as a direct result of the shutdown and its subsequent legal dispute.

The announcement also came only two months after VV Mineral (VVM) began exporting ilmenite via its Transworld Garnet subsidiary in the Indian state of Andhra Pradesh.

If the announcement results in the return of mining in Tamil Nadu, global ilmenite production could surge by up to half a million tonnes per year, placing downward pressure on already weak ilmenite prices.

Chinese ilmenite prices have fallen on seasonally lower pigment demand in China, disruptions in pigment plant operating rates in some provinces, an uptick in local ilmenite supply, trade war fears  as well as a weakening yuan against the dollar.