For the last few years, the gaze of many TiO2 feedstock producers has been firmly fixed on the demand trends of pigment and – further along the value chain – paint. So much so, that other market forces have gone out of focus.
As feedstock demand trends rebound from a recent downturn, prices remain firm, and the industry proves resilient to demand volatility, Reg Adams of Artikol UK says it’s time to divert our eyes to a bigger threat: a dwindling feedstock supply outlook.
“In short, pigment producers will need to generate 4.6 percent more in 2020 and there is no real sign of enough new feedstock capacity to cope with that extra jump in demand – coupled with a number of uncertainties in the supply chain,” said Adams.
Ahead of the Minerals Sands Conference 2020 Adams highlights several key developments in the global marketplace, which may threaten feedstock supply.
A key concern for Adams is a string of outages in major global supply hubs. Most notably, Cristal/Tasnee’s new ilmenite smelter in Saudi Arabia.
“Crystal/Tasnee’s smelter was meant to be producing half a million tonnes per annum of slag by now – but is still not operational,” said Adams.
“Bearing in mind that total feedstock demand is to the tune of 8 million tonnes per annum, a deficit of this magnitude will be felt profoundly by the industry.
“The project was announced in 2011, but even today it’s not up and running, with a number of technical and construction issues. Plus, it’s very close to the Saudi Yemeni border, a prolific war zone that has been ticking away for quite a few years now,” he said.
Aside from the direct impact of a half-million-tonne supply deficit, knock-on effects of this project delay may also be felt, warned Adams.
“The Saudi ilmenite smelter was due to come on stream in the second half of 2014, then 2015, then 2016 and so on and so on. Because of that anticipation of a major addition to the supply pool it made other players in the field hold back, and they haven’t really been investing in expanding their own capacity,” he said.
Meanwhile, labour difficulties and community action have caused outages for players like Iluka’s Sierra Leone operation and Rio Tinto’s South African operation. Whilst unforeseen technical issues and accidents have affected supplies from the ilmenite smelters of Eramet in Norway and Rio Tinto in Canada.
M&A activity has put a hindrance on some supply operations, most notably Tronox’s acquisition of Cristal, first heralded in February 2017.
“At several times in the years that followed, it looked as though the deal might have to be abandoned – in the same way that other ambitious amalgamations in this business have been effectively scuppered by the anti-trust authorities in the past,” said Adams.
“But, after agreeing to sell its two large chloride-route pigment plants in Ohio to Ineos, the Tronox/Cristal deal was finally consummated in Q2 2019.
“This propelled Tronox from fifth to second place in the world TiO2 pigment league, with a total combined capacity in excess of 1 million tonnes per year.
“In Australia, there is now just one pigment producer, with an exportable surplus of around 200,000 tonnes per year.
“Ineos – one of the global chemical industry’s giants, but a complete newcomer to the TiO2 industry – has emerged as the second largest US producer, with a capacity of nearly 250,000 tonnes per year.
“Before too long, Ineos may well seek to extend its reach in the TiO2 value-chain, giving rise to more M&A activity.
These developments have changed the nature and ethos of the pigment industry, Adams said.
“The business model of Tronox is vertical integration, from mineral sands to pigment, so ultimately they will only produce as much feedstock as they need,” he added.
“Right now, the company is about 85 percent self-sufficient in feedstock, but the ultimate aim is to be totally independent of third-party suppliers.”
Exploration activity dwindling
Investment into mineral sands exploration – and therefore the overall pipeline of projects – is also drying up, Adams warned.
“The industry hasn’t been attractive enough for investors to pummel money into any significant new projects for the last ten years now. As a result, there haven’t been any major new deposits found for quite some time.
“This is unlike the previous decade, in which Iluka discovered the Jacinth/Ambrosia deposit in South Australia, and we saw lots of new material coming out of Africa, from the likes of Base Resources (in Kenya) and MDL, now Eramet (in Senegal).”
Reasons for the investment drought are far-reaching, but volatile swings in prices, profits and demand throughout the TiO2 value chain are behind much of the apprehension.
These have been fueled by a host of threatening political setbacks and macro-economic forces – from the Trump trade tariff, to post-Brexit uncertainty in Europe, the annexation of Crimea, Saudi / Iranian tensions and China’s assertiveness vis-a-vis its neighbours.
Closer to home, fund managers are also deploying fewer mineral sands specialists due to fee pressure – which means even resource specialists (and certainly non-resource specialists) are shying away from mineral sands capital raises.
With a lack of expertise in this industry, the leap of faith it requires to invest in a relatively unknown, complex and volatile commodity segment has proven too much for many.
The reluctance to invest in exploration is now coming to roost, Adams warned; and with only existing mine assets to sweat, he expects there will be notable financial implications for the sector.
“As is typical with any mining project, you mine the better grades first. Some of the longer standing mineral sands mines are now facing declining grades which inevitably means higher costs.
“They’re either having to ratchet up ore extraction rates or face the prospect of lower outputs of finished products. In either case there will be a loss in revenue,” he said.
All of this may however be offset by the opportunity for major feedstock producers to claim greater market share.
“In many ways it’s quite an optimistic scenario for players, like Iluka and Rio Tinto,” he said.
“When supplies are this tight and demand is increasing, they may be able to raise prices to the point of neutralising (or even outweighing) the lift in mining and smelting costs.”
The prospect of a sustainable long-term price underscoring decent profitability would also create a more favourable climate for investment in new projects, he added.
Though the threat of a supply shortfall is real, there is hope for a turnaround with new greenfield sites being pegged by key market players, said Adams.
“Sheffield Resources are focusing their attention on the Canning Basin in Western Australia – a new and unturned area for mineral sands.
“This is a promising region and could prove to be like the Murray Basin was for the mineral sands industry in early 1990s.
“Smaller players like Image Resources and Doral, with recently opened mines in Western Australia, are also set to make valuable contributions to supply,” he added.
Supply side factors aside, Adams reminds us that we ought to pay close attention to recent changes in China – the world’s largest TiO2 feedstock market, which relies heavily on imports to supplement its own fairly low-grade ilmenite production.
“The nature of China’s feedstock requirements is changing. Five years ago, virtually all of the country’s pigment output was derived from sulfate-route plants, mostly using ilmenite feedstock.
“In 2019, China’s total TiO2 pigment output was 3.1 million tonnes, with chloride-route pigment plants accounting for just over 200,000 tonnes. Lomon Billions, the largest Chinese pigment producer and the world’s number three, is one of the major drivers of this trend.
“This is significant because chloride plants require a TiO2 rich feedstock – i.e. a TiO2 content of at least 82 percent – rutile, synrutile or high-grade slag. By contrast, sulfate-route plants can work quite happily with lower grade ilmenite.
“The advent of China as a chloride-route TiO2 pigment producer has been fairly slow taking off but could mean that Chinese demand in the future will be concentrated at the high end of the TiO2 rich feedstocks.
“This will play really well into Iluka’s book as they are by far the largest producer of rutile and synrutile in the world, largely thanks to their operations in Australia and Sierra Leone. It will also be positive for Rio Tinto’s business in chlorinatable slags produced in South Africa and Canada.”
Whatever the outlook, there will always be plenty to talk about in the world of TiO2.
Hear more from Reg Adams and get fresh up-to-date commentary on the state of the sector at Informa’s Mineral Sands Conference – due to take place 18-19 March in Perth.