Europe, US drift away from Chinese fluorspar

By Michael Greenfield
Published: Monday, 02 September 2019

The consequences of China’s environmental inspections crippled supplies of fluorspar to the rest of the world in 2018, and the material now comes at a premium although quality and delivery are not guaranteed. Michael Greenfield examines how European and US consumers of the mineral are looking elsewhere to secure their supply chains.

China has dictated the global minerals markets for almost three decades, thanks to its production dominance in many raw materials sectors. But its focus has now switched from mining to the value-added section of the supply chain for many of the minerals it exports in large quantities.

The country has also made moves toward cleaning up its mining and industrial sectors, seeking to improve air quality and reduce water pollution from factories that were once allowed free rein to produce as much as possible, regardless of the environmental consequences.

Beijing will complete its 13th Five-Year Plan at the end of 2020, rounding off a half-decade characterized by environmental controls that have severely curtailed the country’s fluorspar production.

As China’s emphasis shifts upstream, the country’s fluorspar market has decoupled from its traditional buyers in the rest of the world. Today, the country’s Asian neighbors take much of the Chinese material that previously went to Europe and the United States.

Two trends working in parallel have contributed to this change.

First, China is consuming higher volumes of high-quality fluorspar domestically. Second, ex-China consumers are looking to reduce their reliance on Chinese material, which is not guaranteed to arrive if government environmental controls sweep through the mining sector again, disrupting mining, processing and exports.

Research from industry consultant Roskill, published in September 2018, showed that 600,000 tonnes of China-origin fluorspar production was taken out of the market following Beijing’s environmental inspections in mid-2017.

This reduced China’s nameplate capacity output by 9.5% to 5.7 million tonnes per year.

Flu_1  

Diminished exports to the West

"Compared to the past, the role of Chinese fluorspar for the US and Europe is completely different," Oliver Rhode, managing director of Germany-based specialist sourcing company Xenops Chemicals, said.

"[Europe and the US] used to be flooded with good quality, low cost, Chinese material. This has changed, because the Chinese have developed their own fluorine value chain and because fluorspar production is now more difficult in China due to the environmental policies. Now, I would say [the US and Europe] have no reliance on Chinese material," Rhode added.

Trade data from the US Geological Survey showed that the US imported just 394 tonnes of Chinese acidspar in 2018. This compared with 45,000 tonnes the year before - a 99.1% drop.

Market participants have also remarked on the dramatic shift in the global fluorspar supply chain.

"Chinese fluorspar practically disappeared in the US. That was [where we noticed] the first signs of contraction, [because it was] the first place the Chinese stopped selling," one producer said.

"In Europe, I believe there were also fewer and fewer Chinese exports," he added.

"I believe we will continue to see less and less Chinese fluorspar in the international market, because China is investing in more chemical and fluoropolymer plants," he said.

Data from the China Customs Bureau show that the major European export destinations, the Netherlands and Germany, have taken lower volumes of Chinese fluorspar since environmental controls caused prices to surge in January 2018 (see graph).

The Netherlands, where material is received in Rotterdam before being distributed throughout Europe, imported no Chinese fluorspar for three of the eight months up to June 2019 - a noticeable change from what previously were fairly regular and large monthly receipts.

The reasons behind the decline in Chinese fluorspar exports to US and Europe are twofold - price and quality.

Since environmental controls designed to curb pollution from mining came into force in China, ex-China consumers have struggled to find acid-grade fluorspar with the right impurity profile - namely, less than 1% silica and low levels of calcium carbonate - to satisfy their requirements.

When the market became tighter following the imposition of environmental controls, which shut some mines and reduced production at others, China-origin acidspar became the most expensive material of its kind on the international market.

This made it an unattractive proposition for consumers in Europe and the US, which also have to pay $35-55 per tonne to cover logistics costs.

Meanwhile, for Chinese producers, increasing amounts of red tape from the central government have made the export market unfavorable, and trade tensions between China and its markets in the US and Europe have created uncertainty about the sustainability of relying on buyers in these destinations.

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Rising demand for air conditioning and fridges in India is
supporting acidspar consumption.
David Brossard, via Flickr 

Asian demand remains strong

Indian imports of fluorspar from China in the 18 months from January 2018 to June 2019 remained solid, totaling 86,000 tonnes for the period.

The three strongest months were January to March 2019, during which 21,600 tonnes were imported in total.

India began ramping up its imports of Chinese fluorspar when prices were climbing and has maintained high levels since. This has been driven in part by strong demand for acidspar from India’s air-conditioning and refrigeration industries, which have been growing rapidly with Indian consumers becoming wealthier.

Japanese imports of Chinese fluorspar have likewise remained firm, averaging 4,500 tonnes per month in the 11 months up to June 2019.

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Construction of SepFluor’s Nokeng fluorspar mine in
South Africa.
SepFluor 

Panic over scarcity

The tight fluorspar supply situation in China caused by environmental inspections was exacerbated by the later-than-scheduled arrival of new, ex-China supply.

After suffering severe supply chain disruption last year, many of these ex-China fluorspar consumers ensured that they did not suffer the same fate in 2019 by avoiding a reliance on Chinese material that was not guaranteed to be delivered.

"Consumers have definitely covered themselves better than [they did] in 2018. The feeling is that there is scarcity, but not panic," the first producer said. "I believe that spot selling [from China] will always be there, because there will be someone that has issues or a delay in delivery."

New suppliers

The international market has been eagerly waiting for new, non-Chinese producers to provide additional reliable sources of fluorspar.

Canadian newcomer Canada Fluorspar, which operates the St Lawrence fluorspar mine in Newfoundland, Canada, had announced that it would start shipping material around September 2017, creating expectations of additional supply.

In the event, it was not until a year later that the company finally sent out its maiden parcel.

While the arrival of this new supply was welcomed by the market, the delay in it becoming available left many scrambling to cover their needs when Chinese material became scarce.

Meanwhile, SepFluor, a South African company that owns the Nokeng fluorspar project near Pretoria, finished building its mine in March and officially opened the site in early August.

Fastmarkets understands that the company has not yet produced any acid-grade material, although SepFluor said that it has contracted at least 40% of its capacity for 180,000 tpy for this calendar year.

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China has launched a series of environmental inspections
over the past five years intended to reduce pollution from
its industrial sectors.
Clay Gilliland, via Flickr

No going back

Although both Canada Fluorspar and SepFluor admit to having had discussions with Chinese buyers, so far they have said that all their contracted deliveries are destined for US and European customers.

Fastmarkets is aware that five of the four shipments which have so far left Canada Fluorspar have gone to the US.

In the meantime, China’s imports of fluorspar have been increasing while domestic production has fallen - a trend that was expected to continue in the next year.

A source in Mongolia reported that the Mineral Resource & Petroleum Authority of Mongolia had recorded a 44.4% year-on-year increase of fluorspar exports to China in the first five months of 2019.

The increase meant that exports to China, which have now risen for three consecutive years, reached 221,500 tonnes of fluorspar from January to May this year. China accounted for 65% of exports, with Russia taking the remaining 35%.

Fastmarkets was unable to verify this with the authority itself but, given other market factors, this was a plausible development.

There has historically been a lack of transparency about how much material that is sold on an fob China basis was actually produced in landlocked Mongolia, and how much passes through the country from other sources before being declared of Mongolian origin at the Chinese border.

China’s fluorspar exports have been declared flat in the year to date compared with 2018. If this is true, it would mean that China’s downstream industries are buying and consuming more fluorspar, both domestically and from international suppliers.

"China is still exploring [for fluorspar reserves], despite the fact that it is becoming a net importer," the producer said.

Others believe that China will need to rely more and more on international supply until it gets more of its own mines up and running.

"What we have heard is that the Chinese will become more of a net importer, because it cannot cover the whole of the domestic demand," Olivier Ruffiner, business manager for fluorine at Swiss chemicals company Buss ChemTech, said.

He also pointed out that Chinese government controls on domestic fluorspar producers were likely to persist for some time, which will further limit China’s ability to meet its own fluorspar needs.

"For the past few months, a few smaller [Chinese] companies have been closed overnight, [subsequent] to government inspections," Ruffiner said. "The installed capacity [for aluminium fluoride and hydrofluoric acid] in China is higher than the production rate, [so] capacity utilization is probably at 70-75%."

The market was unanimous in its view that China will continue to grow as a net importer of fluorspar, having dominated the export market in former years, thus creating opportunities for more ex-China mines.

All the signs point toward further separation of Chinese fluorspar supply from markets in Europe and the US.

Inspections cause price spikes

In January 2018, when the effects of the environmental controls were at their sharpest, fluorspar prices spiked globally.

At that time, the price for acidspar, 97% CaF2, wet filtercake, fob China, went to $480-520 per tonne, up from $300-340 per tonne in November 2017.

By comparison, the price for acidspar, 97% CaF2, wet filtercake, fob Durban, South Africa, was $350-400 per tonne, up from $200-230 per tonne in December 2017.