Supply shortage of zircon to continue, further price rises unsustainable

Consumption of zircon rebounded strongly in 2010, reaching 1.33Mt, following an 18% fall in 2009 because of the global economic downturn. Growth over the last decade has come mainly from the ceramics and chemical sectors, growing by 4.1%py and 7.5%py respectively compared to overall market growth of 2.6%py.

China now accounts for over half of total consumption, with the wider Asian region accounting for two-thirds of consumption. Other major ceramic producing countries, such as Spain and Italy, are also large consumers of zircon.

Chemical uses for zircon include pigments, coatings and catalysts as well as the production of synthetic zirconia and zircon metal. Zirconia finds widespread use as a refractory and catalyst material while zircon metal is used largely in nuclear fuel rods. Other end uses, including foundries and refractories, have shown little or no growth over the last decade. The use of zircon in cathode ray tubes has declined considerably as consumers have switched to flat panel display screens.

Zircon is produced predominately in Australia (40% of output in 2010), South Africa (29%) and the USA (8%). Output is controlled by four major producers: Iluka Resources, Richards Bay Minerals, Exxaro Resources and DuPont, together accounting for two-thirds of capacity in 2010.

Zircon has historically been a by-product of titanium mineral extraction, and output has long been constrained by titanium mineral demand. Growth in production of zircon has lagged consumption since the early 2000s, but an almost doubling in zircon prices between 2004 and 2006 put more emphasis on primary zircon production. New deposits entering production, such as in Victoria and South Australia, are being mined predominately for their zircon content.

Increased output from Australia and recovery of zircon from tin and gold tailings in Indonesia boosted supply in 2006 and 2007 and prices stabilised at around US$800/t. The need for greater production was short lived however, as the global economic downturn significantly reduced demand in 2008 and 2009. In an effort to conserve cashflow, producers shuttered capacity, reduced output and started to run down stocks. Higher costs and tight control of the supply chain meant prices remained resilient, despite the downturn in demand. Demand started to recover strongly from Q2 2009 and Chinese imports surged by over 50% in 2010. Producers struggled to meet the rapid rise, already low stocks quickly became exhausted and prices have escalated to record levels in early 2011.