Top 5 factors influencing the mineral sands market in 2017

With global commodity markets in flux, uncertainty has become the new norm for the mining industry, but how can we navigate the many factors that are influencing the industry?

We invited leading Ti02 industry commentator and editor of Focus on Pigments and TiO2 Worldwide Update, Mr. Reg Adams to distill the top five factors he anticipates impacting the mineral sands market in 2017 and beyond.

Reg Adams: “My top five are underpinned by the view that for any mining company, in fact for any company in any industry, the primary objective must be to try to ensure that you make a decent operating profit, not only in the boom times, but in the bad times too.

Also, that you try to ensure that you get a reasonably good return on your major capital outlays. This is especially pertinent to the mining industry, with big capital investment requirements, long lead-times and potentially volatile product prices. Focusing on shareholder returns on investment throughout the entire business cycle. That ought to be axiomatic.”

1) Growth in end-use demand

Ultimately, demand for TiO2 feedstocks will continue to be driven mainly by demand for paint, plastics, decorative laminates and packaging inks. These are the main product areas in which TiO2 pigment is used. There are no serious technical substitutes for TiO2 pigment in these areas. Increasing consumer affluence will mean increasing per capita consumption of these products, with plenty of scope for increases in China, India, Southeast Asia, over-ambitious America, Eastern Europe and Africa. Long-term trends in demand for paint of various types tend to be aligned with trends in economic (GDP) growth, while demand for plastics and decorative laminates will continue to rise faster than GDP.
High-grade TiO2 feedstock demand will also be influenced by trends in civil and military aircraft manufacture, with buoyant long-term growth characterised by feast-or-famine ordering patterns.
Global demand for zircon will continue to be driven mainly by trends in the usage of ceramic tiles and zirconium chemicals, especially in China. Overall, the outlook for medium-term demand growth in most end-use sectors is fairly healthy.

On a longer-term horizon, it is possible that demand for TiO2 feedstocks may be boosted as a result of the availability of much cheaper titanium metal – thanks to technology such as that pioneered by Metalysis – and as a result of higher demand for TiO2 catalysts for cleaner air and water.

2) Available mineable deposits & upgrading facilities (smelters & synrutile plants)

Several of the older mineral sands mines are now nearing the end of their lives. Within the global portfolio of mineral sands mines that will be mined in the 2017-2025 period, the average ore grade is lower than in the past. Also, the average content of valuable heavy minerals in the assemblage is decreasing.

Inevitably, this means higher costs for producing TiO2 feedstocks and zircon. A high degree of risk & big capital outlays are required for the development of major new sources, especially in remote locations. To incentivise investment in new mines and upgrading facilities, the mineral sands industry needs to be assured of higher prices. However, too much over-ambitious investment would inevitably lead to excess capacity, leading to lower prices for all participants. There is a significant risk of this happening.

3) Industry structure

For many years, the mineral sands industry has been dominated by two major multinationals (Rio Tinto and Iluka). This will probably continue, at least in the medium-term. Upstream vertical integration has been a feature of the industry in recent years, with Tronox and Cristal seeking to secure captive supplies of feedstock. This effectively restricts the size of the market available to mineral sands suppliers dependent exclusively on third-party sales.
Junior exploration companies have always played a key role in the mineral sands industry, having the flexibility and commitment to focus on the development of promising prospects. In many cases, the mark of success comes when the mineable deposit has been developed to attain a value that attracts an acquisition from one of the large established players in the market.

4) GDP growth – world as a whole; also major economies

The major economies being: the US, China, Japan, the EU, India, Brazil, Russia, Indonesia and Nigeria. Growth in GDP, in consumer incomes and in construction industry investment will have a major impact on growth in the consumption of paint and plastics, etc.

Also, the relative rates of GDP growth in the US, compared against Australia, South Africa, Canada, etc. will have an important bearing on currency exchange rates. Mineral sands products are mainly sold under $US denominated contracts, but most of the costs of producing them are incurred in local currencies ($Aus or Rand or $Can, etc.). Hence, forecasts of exchange rates are a significant input when assessing investments in mining in a specific region.

5) Trends in price of oil & therefore energy generally.

Thanks mainly to the rivalry between Saudi Arabia and Iran, it looks as though an era of relatively cheap oil (less than $US 60 per barrel) will last through until the mid-2020s. Cheaper oil and cheaper energy generally should help to hold down the costs of mining, smelting and freight for the mineral sands industry. Also cheaper oil and natural gas should be reflected in lower costs for making petrochemicals and resins for the paint, plastics and decorative laminate sectors, thereby favouring end-use demand growth.

Kim Aldridge: What are the conversations you are most looking forward to having with your peers at the 16th Mineral Sands Conference this March?

Reg Adams: Right now, we are living in an age of many uncertainties, both economic and political. I am very much looking forward to hearing what other industry observers, investment advisors and people at the sharp end (in the mining and exploration companies) are thinking about the future of the global mineral sands industry.

Australia has long been a pre-eminent source of mineral sands supply and a centre of excellence for investment and engineering expertise that can be applied to mineral sands projects all over the rest of the world. The annual Informa Mineral Sands Conference is a great forum for me to learn from discussions with old friends and experts, as well as meeting new entrants to this fascinating and complex industry.