The mineral sands sector is well-accustomed to supply shortfalls, having weathered a series of geopolitical setbacks since mid-last decade. An unnerving mix of post-Brexit uncertainty, rising tensions with China, and a string of outages in major global supply hubs, have been stalling – or outright upending – production efforts since 2016. However when the COVID-19 pandemic broke out in early 2020, few could have predicted the supply-demand gap widening further.
“Forecasts in Q1 2020 had hinted at a depressed demand from downstream markets for the year as whole, but in fact the opposite occurred,” said Reg Adams of ARTIKOL UK, ahead of the Mineral Sands Conference, hosted by Informa Connect.
“World demand for paint declined like everything else did during the first half of 2020. But then as people got used to working-from-home regimes, and spent more time in their properties, there was a real boost to retail sales of paint, worldwide. DIY retail sales of paint in most industrialised countries soared by 8-10 percent, catching the pigment industry by surprise.”
To a lesser, albeit important, degree, increased global need for packaging plastics and inks also meant a sharp uptick in demand for TiO2.
“A huge surge of online parcels from retail outfits that people would previously have shopped at in-person boosted demand for TiO2 in 2020, with momentum still going strong in 2021,” said Adams.
“Most Western pigment producers had cut back their plant operating rates, thinking there would be a downturn during the second half of 2020. But instead demand went in the opposite direction,” said Adams.
Compounding this, a major dispute erupted between Chemours, the world’s largest multinational pigment company, and Iluka, one of the leading suppliers of TiO2 feedstock.
“The outcome of this dispute was very important for the mineral sands industry as a whole, because it vindicated the growing popularity – from a supplier’s standpoint – of long-term take-or-pay contracts with major customers as vital underpinnings for major investments in new feedstock capacity,” said Adams.
The net result of these forces at the downstream end of the value-chain was a 4.5 percent increase in world TiO2 pigment demand, following a two year decline in 2018-19.
Meanwhile, progress on some feedstock projects experienced major staff shortages, as COVID-19 upended international travel plans for expat-heavy workforces.
“Some mineral sands projects in West Africa, Madagascar and Latin America were delayed as much as two years as a result of the travel bans,” said Adams.
Feedstock supply issues were already present
The pandemic fallout on downstream industries compounds an already tight feedstock supply market, as two of the world’s major producers suspend operations.
“Rio Tinto’s mining operation in KwaZulu-Natal is still catching up from its nine week shutdown in July/August 2021, following the assassination of Nico Swart [a senior manager], multiple cases of intimidation, theft and arson and extensive community unrest in the wake of former President Zuma’s imprisonment. Understandably, this has had a notable impact on global feedstock output,” said Adams.
“Likewise, Iluka’s notification in mid-May 2021 that it would discontinue its Sierra Leone rutile mining operation in November looks unlikely to be rescinded, with no further funds committed and zero candidates stepping up for an acquisition. This will severely curtail global rutile supplies to the tune of about 20 percent.”
The pigment industry still accounts for about 90 percent of total TiO2 feedstock demand, but the nature of the global TiO2 value-chain has changed. Broadly, multinational pigment suppliers have sacrificed market share to try and minimise price oscillations.
China’s speedy economic recovery – thanks partly to its strict and early lockdown restrictions and a massive $US 500 billion Government stimulus package – has helped Chinese pigment suppliers muscle in on the sector. The country has claimed even greater shares of both its domestic market and export markets, particuarly in Southeast and Central Southern Asia, Europe, the Middle East and Latin America.
“Many were expecting China’s production of TiO2 pigment to plateau, having reached over 3 million tonnes in 2019. Any incremental growth was tipped to satisfy China’s own appetite,” said Adams.
“However these estimates couldn’t have been more wrong! The country’s output increased from 3.2 million tonnes in 2019 to 3.5 million tonnes in 2020 and is now anticipated to reach or pass the 4 million tonnes mark in 2022. TiO2 pigment produced in China accounted for 54 percent of total world consumption in 2020 and this ratio is heading towards 58-60 percent over the next few years.”
Because more than 90 percent of China’s TiO2 pigment output comes from sulphate-route plants, the impact of the ongoing upsurge has been hugely beneficial to ilmenite suppliers. Notably Kenmare (Mozambique), Base Resources (Kenya) and several companies with operations in Australia or Vietnam. Chinese operators of chloride-route pigment plants produced 320,000 tonnes of pigment in 2020, mainly based on slag from ilmenite smelters, requiring high-grade imported ilmenite to supplement lower-grade indigenous material.
Prices to be heavily impacted
With mineral sands supplies tight and showing no sign of relief, feedstock prices are forecast to remain firm in the years ahead.
“Natural rutile prices averaged $US 1225 per tonne (fob Australian port) during the first half of 2021 and there are strong signs that this will increase over the next half year. We could easily see natural rutile prices go beyond $US 1400 per tonne by the end of 2022,” Adams said.
On the ilmenite side, prices have also jumped, as Chinese demand sky-rockets and growth in indigenous ilmenite output fails to keep pace.
“The benchmark spot price for ilmenite in the Chinese market was around $375 per tonne in September 2021, representing a 14 percent increase on the September 2020 price. For 2022, the average spot price for ilmenite is expected to be close to $US 400 per tonne and contract prices should be raised accordingly. However, ocean freight rates are expected to remain high, eroding some of the profit margin that would otherwise accrue to established suppliers who manage to keep their other costs in check,” said Adams.
Zircon demand is also thriving, with mid-2021 prices for premium-grade zircon at around $US 1500 per tonne (fob Australia) and destined to increase by a further 8 percent or more during the second half of this year.
A rosier outlook
Beyond 2021, world economies are expected to bounce back to pre-pandemic levels by mid next year, with demand growth for TiO2 pigment settling along with GDP growth.
“Recoveries will vary according to different geographies, but overall demand growth for TiO2 pigment worldwide will likely wane. The industry’s historical growth rate of around 3.5 percent per annum will likely kick back in from 2022 onwards – a drop from 4.5 percent in 2020 and 4.7 percent in 2021,” said Adams.
“That means by 2025 we will be looking at TiO2 world pigment demand to the tune of 7.8 million tonnes and 9 million tonnes by 2030.
“Those figures are significant for mineral sands producers, given the ten year timeframe it generally takes from initial discovery of a worthwhile mineral deposit to customer shipment.”
In Australia the outlook is particularly healthy, he added.
“Firstly, it’s a more stable political environment. Secondly, Australia hosts a great deal of engineering expertise and equipment suppliers. Projects in Victoria and Western Australia look especially promising in terms of bolstering global supply in the years ahead,” Adams concluded.
Continuing the conversation, Reg Adams will give further up-to-date commentary on the mineral sands sector at Informa Connects’ Mineral Sands Conference due to take place 16-17 November at the Crown Perth.
Learn more and register.