Industrial Minerals Snapshot
Are there any silver linings in the industrial minerals markets?
Though diverse, industrial minerals markets have largely been in decline throughout 2015 and 2016 due to falling demand in major markets, declining oil prices, and oversupply. In June, I attended the Industrial Minerals’ International Congress (IMIC) in the Czech Republic. It was not a happy place, with a subdued atmosphere and producers, consumers, traders, and processors all feeling the effects of reduced market activity.
The slowdown in Chinese economic growth experienced in late 2015 has had wide-reaching effects on the industry. The lower production and consumption of steel, construction products, ceramics and petroleum/petrochemical products across the globe have all impacted industrial minerals demand significantly. Despite this backdrop, Roskill has found some areas of development and optimism.
Refractories Hit Hard
The decline in the steel industry since 2014 has been well-reported, with global crude steel production expected to fall 1.1% in 2016. The impact on the associated industrial minerals markets has been equally significant. This was outlined in a presentation by Peter Fitzmaurice and Barbara O’Donovan of Industrial Minerals at the conference, with no end in sight outlined for this year. The steel industry accounted for approximately 75% of refractory material demand in 2015, largely in the form of refractory magnesia, graphite and alumina materials.
Falling steel production and prices in late 2015 and 2016 have reduced consumption of refractory materials and squeezed the margins of steel manufacturers’ prices of refractory minerals even lower. Refractories consumption in other major end-use industries (e.g., cement/lime, non-ferrous metals, glass and ceramics) has also been impacted by falling demand and pricing since late 2015.
On the brighter side, demand for alumina in refractory products is not faring quite as badly, despite falling demand for refractories in volume terms, as the alumina content of refractories has generally increased. This is because many refractory producers have taken steps to develop new products and improve existing production methods in order to improve product performance and longevity.
Drilling Activity Downturn
In addition to falling steel prices and consumption, the decline in oil prices and production has led to reduced consumption of bentonite, barytes and proppants such as frac sands and ceramic (kaolin and bauxite). In May 2016, the Baker Hughes active drill rig count fell to 1,405, its lowest level since 1999, with the U.S. recording its lowest active rig count recorded since prior to 1975.
According to Roskill, bentonite consumption in the oil and gas industry fell to 1,487 kt in 2015 and is expected to drop further to 1,022 kt in 2016. Similarly, barytes consumption in the U.S. has decreased sharply since the start of 2016, almost exclusively caused by falling demand from the petroleum industry, with consumption down to 2,360 kt BaSO4 in 2016 from 3,210 kt BaSO4 in 2015.
The petroleum chemicals industry is targeted as an area of demand growth. The presentation by Bayram Ankarali, of major Turkish boron producer Etimine, noted that the oilfield chemicals industry is an emerging growth market for borates in the years to 2020. However, the recent drop-off in fracking in the U.S. has set back the development of many projects and negatively impacted demand. Though exploratory and production drilling have fallen with oil prices, world production of oil has remained relatively stable.
The consumption of rare earth elements in the petrochemicals industry (largely for the production of FCC catalysts) has grown since late 2015, as reduced supply of tight oils from fracking has increased the dependence on heavier oil, which requires greater volumes of FCCs to process efficiently. Low rare earth prices and good availability of certain light rare earth products have allowed demand growth.
In terms of supply, the same low prices and illegal production in China continue to hinder the development of many non-Chinese rare earth projects. Greenland Minerals and Energy, one of a few non-Chinese rare earth companies continuing project development during this period of low prices, has had recent success; this was highlighted in a presentation by Damien Krebs, metallurgical manager at Greenland Minerals and Energy. In June 2016, the Danish government passed legislation allowing the production and export of uranium products from Greenland, which Greenland Minerals and Energy plans to produce as a co-product of rare earth elements. Greenland Minerals and Energy is also expecting the granting of its mining license application in 2017. However, dark clouds still hover over the industry as rare earth prices, which have fallen significantly in recent years, are not expected to recover during the remainder of 2016. The market remains oversupplied, and attempts to support prices by the Chinese government have failed.
One industrial mineral has bucked the overall negative trend: lithium, which has experienced significant growth in demand throughout 2015. Lithium demand is forecast to increase to over 186,800 t lithium carbonate equivalent (LCE) in 2016, with lithium carbonate and hydroxide prices reaching record highs. Demand growth has largely been driven by the increasing production of lithium-ion batteries, with consumption from the end-use application increasing by 16.7% per year since 2012. Rising lithium consumption in ceramics, glass and other industrial applications will also continue to supplement demand growth.
Lithium demand is forecast to continue to increase beyond 2016, reaching over 235,000 t LCE in 2020 and over 325,000 t LCE in 2025, according to Roskill’s recent lithium report. The majority of new demand will be from battery applications, requiring battery-grade lithium products for which a short/medium-term supply deficit is forecast.
In its presentation at the IMIC, Keliber Oy, which is developing the Keliber lithium project in Finland, suggested lithium demand could reach 473,000 t LCE by 2030, with the electric vehicles market alone consuming 145,000 t LCE. However, the lithium industry must make sure not to experience the same fate as previous technology boom markets such as graphite and rare earths, which displayed rapid price increases followed by almost as rapid price declines. A key difference between the lithium industry and the aforementioned industries is the inability of existing producers to quickly ramp-up the supply of battery-grade materials at a rate to meet short-term demand growth. Price increases are expected to support the development of projects toward the end of the decade and ease the supply deficit.
Graphite, the other major industrial mineral used in lithium-ion battery technologies, could also see demand and price increases throughout the remainder of 2016. Demand for natural and synthetic graphite is forecast to increase by 2% in 2016, with an 11% rise in consumption from the batteries industry, according to Roskill’s 2015 graphite report.
Investment in graphite projects has been slow throughout 2015 and 2016, as investors have been reluctant to reengage with the graphite industry after the 2012 price spike and subsequent fall. Private equity funds, including Resource Capital Fund, continue to investigate financing industrial minerals projects, particularly projects exposed to high-tech mineral markets such as graphite, lithium, silica and rare earths.
Innovation to Drive New Markets
Among low prices, falling demand and oversupply, the buzz at the conference was that innovation has become the key focus for many industrial minerals players and consumers, diversifying product lists and improving product specifications to attract new customers and maintain revenue. Examples presented at the conference include the glass industry, where producers are redesigning products and processing methods to maximize the recyclability of glass products and create complete (cradle-to-grave) recycling circuits.
In the ceramic industry, Lucideon has developed a field-enhanced sintering method that is reported to significantly reduce firing time and temperature for ceramic products. Test work also reported the method reduced CO2 emissions and costs incurred during the production process by roughly 40%.
Prices for the majority of industrial minerals are not expected to recover strongly throughout the remainder of 2016, as demand from major industries such as steel, oil and gas, and construction is unlikely to improve in the short term. This is despite the introduction of new policies in China and the rest of the world to support the steel, construction, and housing industries. Continued product innovation and cost cutting will be crucial in allowing industrial minerals producers to maintain market share and sufficient revenue.
As a result of lower prices, new industrial minerals projects will find it more challenging to enter production in the short/medium-term, reducing the chance of further oversupply that would prolong supply-side pressure on industrial minerals prices. The exception to this is lithium, where increasing demand and insufficient supply of battery-grade material are expected to increase lithium prices further. Increased lithium supply of battery-grade products from new and existing projects will be required in 2016 and 2017 to support this strong growth in demand.
Any views or opinions expressed in this column are those of the author and do not represent those of Ceramic Industry, its staff, Editorial Advisory Board or BNP Media.