Zirconium prices extend rally as market tightens

Zirconium silicate prices have climbed to eight-year highs as rising demand and disruptions to zircon output are tightening the market, with prices expected to continue increasing.

The price range for 65pc-grade zirconium silicate was assessed this week at 15,000-15,500 yuan/t ($2,318-2,395/t) on an ex-works China basis, up from Yn14,500-15,000/t in the previous assessment on 15 June and its highest level since December 2012. Prices have climbed in five of the past seven weeks.

The market for 65pc-grade zircon sand produced in Hainan, China, has been climbing steadily since March. It was last assessed at Yn11,500-12,000/t on 22 June, from Yn10,900-11,500/t on 15 June and Yn8,800-9,300/t in mid-March.

The rapid return of Chinese tile manufacturers — the largest consumers of zirconium silicate — shortly after the Chinese lunar new year holiday and the recovery of other markets following the Covid-19 outbreak have contributed to a strong uptick in demand this year.

Sales of zircon in the first quarter were stronger than usual for the period, which is usually weak, according to Australia-based producer Iluka. US firm Tronox reported a 91pc increase in zircon sales in the first quarter, outpacing expectations and reducing its inventory, it said but did not disclose the volume.

Chinese demand for domestic tiles has risen on increased construction activity. Urbanisation and a growing middle class in other Asian economies has further lifted demand for tile flooring. In the US and Europe, industrial machinery and advanced manufacturing processes have boosted refractory demand. Europe's tile exports have increased to meet demand in many markets fuelled by renovation activity and supply gaps caused by China's anti-dumping and trade restrictions, Iluka said in a recent update.

Global zircon production fell to 1mn t last year, from 1.2mn t in 2019, as producers initially cut output on declining prices and expectations of low demand. Limited new supply is expected to come on line in the next few years, as zircon grades are declining at the major mines. And there are few new projects with substantial volumes in the pipeline, and those that emerge will face technical and geopolitical challenges.

Supply has been disrupted at UK-Australian mining company Rio Tinto's mineral sands operation in Richard's Bay, South Africa, with the firm abandoning a $500mn expansion project in response to violent protests that have damaged equipment. There is also a possibility that the company could close the mine entirely in the future.

Iluka last month said it will temporarily suspend operations at its Sierra Rutile unit in Sierra Leone from 19 November, as low productivity and high costs have made production unsustainable. The company will also evaluate the feasibility of continuing the development of its nearby Sembehun project. The firm produced only 6,600t of zircon in Sierra Leone last year, all of it during the fourth quarter. Its total zircon production last year fell by 42.5pc, to 185,000t.

Zircon producers have raised their prices in response to the tightening market. Ireland-based Kenmare Resources reported higher second-quarter prices on low inventories and Australia's Base Resources reported a "significant" price increase for June-quarter contracts. Iluka boosted its price for standard and premium zircon by $70/t from April this year, and it is set to raise the price further.

Australia's PYX Resources, which produces premium zircon in Indonesia, has hiked its price for the third time this year, by $210/t to $1,750/t for July shipments, representing a total increase of $355/t so far this year. This latest increase reflects South Africa's continued supply issues and China's low inventory, which has triggered a lack of premium zircon supply globally, the company said. Australian sales of heavy mineral concentrate to China have further weighed on the availability of premium zircon in the market, lifting demand from PYX's customers. And Indonesia's zircon prices have reached their highest level since 2013.

Meanwhile, the global shift to renewable energy is raising demand for premium zircon for fused zirconia and other products that cannot use standard zircon. Demand for fused zirconia remains robust in China for use in special refractories for solar and medical glass and US producers are reporting order growth. The price range for fused zirconia was last assessed at Yn30,500-31,500/t on 22 June, up from Yn29,500-30,000/t a week earlier, and its highest level since March 2019.

PYX expects zircon prices to remain high in the medium-to-long term as supply continues to tighten.

Ukraine is auctioning state-owned United Mining and Chemical (UMCC) in July, at a time that will enable it to capitalise on the strength of the zircon and titanium markets. The starting price for the auction is 3.7bn Ukrainian hryvnia ($134.4mn). UMCC, Europe's only zircon mining firm, has the advantage of being able to deliver to customers in Europe within days rather than the 30-day delivery times offered by suppliers in Asia-Pacific, Africa and North America.

By Nicole Willing