Embed Size (px)
Citation preview
Iluka Resources LimitedMineral Sands Marketing Briefing Session
Sydney 9 November 2010Melbourne 10 November 2010F
or p
erso
nal u
se o
nly
Disclaimer – Forward Looking Statements
This presentation contains forward-looking statements that are subject to risk factors associated with exploring for, developing, mining, processing and sale of minerals. Forward-looking statements include those containing such words as anticipate, estimates, should, will, expects, plans or similar expressions. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a range of variables and changes in underlying assumptions which could cause actual results or trends to differ materially.
These include, but are not limited to: price and currency fluctuations, actual supply versus demand, production results, reserve and resource estimates, loss of market, industry competition, environmental risks, physical risks, legislative and regulatory developments, economic and financial market conditions in various countries and regions, political risks, project delay or advancement, approvals and cost estimates.
Specific Risks & Sensitivities
The information contained in this presentation is subject to, but not exclusively to, the following:Changes in exchange rate assumptions Changes in product pricing assumptionsMajor changes in mine plans and/or resourcesChanges in equipment life or capabilityEmergence of previously underestimated technical challengesEnvironmental or social pressures which impact license to operate
All currency referred to is Australian denominated unless otherwise indicated.
Commentary in relation to inducement analysis contains indicative inducement pricing levels. Actual pricing outcomes may vary materially from the prices indicated. Iluka makes no undertaking or warranty to update any of the information contained in this presentation.
2
For
per
sona
l use
onl
y
3
Structure of Presentation
1. Evolution of Iluka’s Sales and Marketing Function - David RobbManaging Director
2. Characteristics of the Mineral Sands Market - Chris CobbGeneral Manager, Sales and Marketing
3. Iluka’s Market Analysis & Key Market Dynamics - Doug WardenGeneral Manager, Business Development
4. Current and Evolving Market Conditions - Chris Cobb
5. China Market - Stephen HayCountry Manager, China
6. Summary and Q&As
For
per
sona
l use
onl
y
4
Evolution of Iluka’s Marketing Function
David Robb
4
For
per
sona
l use
onl
y
5
Evolution of Iluka’s Sales & Marketing2007 – Alignment to Shareholder Value Creation Objective
• Understanding and diagnosis
• Integrated portfolio business model- cost and margin position of all production/products reassessed (ROC)- willingness not to run operations if returns inadequate
• Analysis of contracting & contractual arrangements- shortcomings and constraints identified – industry culture- “cap & collar” titanium dioxide arrangements – some years to play out
• Market position evaluated- underweight in major growth market (China) – 15% market share in 2006- logistics model oriented to mature markets, not emerging- capabilities required to capture “long tail” opportunities
• Business model for Jacinth-Ambrosia determined- zircon supply arrangements given global significance of Jacinth-Ambrosia- leverage existing assets
For
per
sona
l use
onl
y
6
Evolution of Iluka’s Sales & Marketing2008 – Capabilities Built
• Commitment to new supply sources – Murray Basin Stage 2 & Jacinth-Ambrosia
• China market position established- representative office & modified logistics
• Iluka prepared to “go-short” on zircon supply- 2nd half pricing higher than initial industry expectations
• Iluka creates a shorter dated zircon market
• Industry analysis capability upgraded- historical pricing analysis- customer supply arrangements- global supply dynamics, including inducement analysisF
or p
erso
nal u
se o
nly
7
Evolution of Iluka’s Sales & Marketing2009 – Response to the GFC/Positioning for Recovery
• Global zircon demand reduced by ~25%, high grade titanium dioxide by ~20%
• Iluka supply response while keeping new projects on track- WA production capacity decreased ~50%, 32% reduction in zircon production- modified Jacinth-Ambrosia ramp up, roster changes in Virginia- business re-configuration accelerated, two synthetic rutile kilns idled
• Chris Cobb appointed General Manager Sales & Marketing
• New role of General Manager Product & Technical Development - Dr Victor Hugo
• Industry analysis, including customer inventory analysis work, evolved
• Development of customer focus model (“BCP”) as part of Iluka’s game planFor
per
sona
l use
onl
y
8
Evolution of Iluka’s Sales & Marketing2010 – Recovery & Delivery of New Supply Sources
• Initial uncertainty re demand recovery/continuing global volatility
• Project ramp up and sustained performance in 2nd half
• Zircon price increases (April, July, October)- average Iluka zircon price exits 2011 >US$1,000/t
• Supply concerns vis a vis high grade titanium dioxide- Iluka sold small uncontracted SR volumes – ~20% above 2010 contracted prices- Iluka "incentivised" to extend SR3 kiln operation to end of 2010
• Further enhancements to Iluka’s marketing model- additional China resourcing- in-country supply points established in Europe- increased new market penetration activities
• Product & technical development
For
per
sona
l use
onl
y
9
Evolution of Iluka’s Sales & Marketing
2011 – 1st Year of New Iluka• Zircon and high titanium markets expected to remain supply constrained
- continued zircon pricing momentum - 1st year of unconstrained high grade titanium dioxide pricing for Iluka
• Lower synthetic rutile production to await higher prices
• Product & technical development progress- Murray Basin/jacinth-Ambrosia ilmenite as basis for 2 kiln model from 2012
2012 - New Industry Dynamics• Demand based on more broadly based global growth
• Supply an acknowledged problem
• Industry-wide contractual flexibility on high grade titanium dioxideFor
per
sona
l use
onl
y
10
Zircon Market Conditions
• China and other developing economies drive demand (urbanisation)
• Global supply deficit
• Material price increases required to rationally induce new supply
• Lead times suggest that new supply unlikely to make major contribution until at least 2015
• Higher prices likely to be sustained
For
per
sona
l use
onl
y
11
Iluka’s Zircon Opportunity
• Provide zircon price direction for customers
• Contribute to improvement in profitability through the value chain
• Further price increases possible for ~ five years
• Potential to address deficit through increased production, appropriately priced
• Plans in progress to evaluate acceleration of Jacinth-Ambrosia production- debottleneck opportunities in 2011- potential acceleration of production from 2012
• Higher long term prices expected to increase reserve base
• Product development expected to increase reserve base
For
per
sona
l use
onl
y
12
High Grade Titanium Market Conditions
• More complex demand and supply factors than zircon
• Iluka is not the “market leader” in titanium dioxide feedstocks
• Major cost pressures on Iluka competitor production
• Short to medium term supply likely to remain constrained- including risks to new supply sources
• Inducement analysis suggests material pricing increases required
• End of historical “cap and collar” contractual arrangements
• Customer scramble for available supplyFor
per
sona
l use
onl
y
13
Iluka’s High Grade Titanium Opportunity
• New pricing environment for high grade titanium products from 2011
• More flexible volume and pricing arrangements
• Ability to re-activate idled capacity as product prices warrant
• Testing of Murray Basin/Jacinth-Ambrosia ilmenite- long life source of synthetic rutile feed
• Potential development of large synthetic rutile ilmenite resources (e.g. Cataby)
• Work on producing sulphateable synthetic rutile product- potential application into China marketF
or p
erso
nal u
se o
nly
14
Characteristics of the Mineral Sands Market
Chris Cobb
14
For
per
sona
l use
onl
y
Key Characteristics of the Mineral Sands MarketOverview of Principal Product Streams
Zircon 2008 = 1.2mt(2009 = 0.9mt)
Sulphate Slag and Ilmenite (50-80% TiO2)
Chloride Ilmenite and Leucoxene (60-70% TiO2)
Synthetic Rutile (SR) (90-96% TiO2)
Rutile (95% TiO2)
Upgraded Chloride Slag (UGS) (95% TiO2)
Chloride Slag (80-85% TiO2)
Titanium Feedstocks, 2008 = 6.0mt (2009 = 5.2mt)
20% 80%
Typical industry zircon to titanium dioxide units in mineral sands deposits - 20:80
Sales (mt)
2008 Global Mineral Sands Market *
* 2008 Global Sands Mineral market is more representative than 2009 due to GEC impact in 2009.Source: TZMI and Iluka
15
For
per
sona
l use
onl
y
16
Key Characteristics of the Mineral Sands MarketOverview of Principal Product Streams
Sulphate Slag and Ilmenite (50-80% TiO2)
Chloride Ilmenite and Leucoxene (60-70% TiO2)
Synthetic Rutile (SR) (90-96% TiO2)
Zircon Titanium
Size of market (2008) 1.2mt 6.0mt
Historical demand growth, 2000-08
4.1% p.a. 3.0% p.a.
Major markets China (40%)Europe (20%)Asia ex. China (20%)
Europe (30%)North America (25%)China (20%)Other (25%)
Pricing (approx.)Start of 2010
Rutile: ~ US$550/tSR: ~ US$450/tUGS: ~ US$550/tChl. Ilmenite: ~ US$100/tChl. Slag: ~ US$400/t
Global Mineral Sands Market Characteristics
~ US$800/t
> US$1000/tEnd of 2010
Note: Titanium product pricing constrained by “cap and collar” contractual arrangements in 2010.Source: TZMI and Iluka 16
For
per
sona
l use
onl
y
17
Main Product Usages and ApplicationsPredominant End Consumer Applications - 2008
Ceramics, 55%
Foundry, 11%
Refractories, 11%
Zirconia & Chemicals,
18%
Other, 5%
2000-08 Average Annual Growth
Main Attributes:•Opacity, whiteness, abrasion resistance, temperature resistance and inertnessPotential Substitutes:•White clays, kaolin and feldspar (in ceramics)Value in Final Product•Tiles ~5% to 10% (dependent on tile type, quality and colour).
Main Attributes:•Opacity, whiteness, UV absorption (pigments)•Strong, lightweight, corrosion resistant (metals) Substitutes:•No major substitutesValue in Final Product•Paint ~5% (dependent on paint application, quality and colour).
Zircon Titanium
4%
0%
11%
(8%)
0%
2000-08 Average Annual Growth
2%
14%11%
Source: TZMI and Iluka
17
For
per
sona
l use
onl
y
18
Physical Iluka Sales Flows – September YTDImportance of China & Developing Economies
ChinaZ – 131kt R – 3ktSR - -
AsiaZ – 44kt R – 28kt
SR – 116kt
EuropeZ – 90kt R – 47kt
SR – 70kt
AmericasZ – 57kt R – 71kt
SR – 52kt
Mdl. EastZ – 8kt R – 1kt
SR – 16kt
Notes: Data based on sales to September 2010. Asia includes Australia and Japan but excludes China.
18
For
per
sona
l use
onl
y
19
Enhanced Logistics & Market Supply ArrangementsWarehouse and Small Lot Distribution Facilities
Wilmington, Delaware
Zircon Premium
Castellon, Spain
Zircon Premium
Antwerp, Belgium
Zircon -Premium
Xiamen, China
Zircon Premium
Shanghai, China
Zircon PremiumRutile
Qingdao, China
Zircon Premium
19
For
per
sona
l use
onl
y
Iluka Customer StructureConsolidated Titanium, More Fragmented Zircon
• Zircon flour millers (ceramics), 60%• Casting material manufacturers
(refractories and foundry), 18%• Fused zirconia, 10%• ZOC chemical manufacturers, 7%• Other, 5%
Top 5 ~ 45%
Other ~ 55%
Other ~ 10%
Top 5 ~ 90%
Zircon Titanium
• Pigment producers, 90%• Titanium sponge producers,5% • Welding rod manufacturers, 3%• Other, 2%
Iluka
Cus
tom
er
Indu
strie
sIlu
ka C
usto
mer
Se
gmen
tatio
n
Note: Data based on 2008 sales.
20
For
per
sona
l use
onl
y
Industry Structure & ParticipantsRelative Industry & Geography Supply Consolidation - 2008
Including:Indonesia, 6%China, 5%Vietnam, 3%India, 2%
Including:China, 12%Norway, 7%Ukraine, 7%India, 4%Vietnam, 4%
Zircon Titanium
Maj
or P
rodu
cers
21Maj
or P
rodu
cing
C
ount
ries
Source: TZMI and Iluka
For
per
sona
l use
onl
y
22
Iluka’s Market Analysis & Key Market Dynamics
Doug Warden
22
For
per
sona
l use
onl
y
23
Iluka’s Analytical Base
Iluka’s analytical base for marketing and planning purposes focuses upon some of the following areas:
• Demand analysis- sector; end-applications; regional usage
• Customer (pigment feedstock) capacities and titanium feedstock mix requirements• Inventory analysis downstream (zircon and titanium dioxide)• Supply analysis
- economic assessment of all known prospects & projects- supply curve & inducement analysis- marginal production analysis (Iluka)
• Competitor analysis- mining, processing, upgrading costs- by-product contribution- Revenue : Cash Costs (R:CC) position; assemblage & production characteristics
23
For
per
sona
l use
onl
y
24
Zircon Market
24
For
per
sona
l use
onl
y
Zircon DemandOverview
• Historically zircon demand dominated by European ceramics industry.
• Key trend in zircon market over last 20 years is the emergence of China and other developing countries.
– China now accounts for ~40% of zircon demand, up from 3% in 1990.
– In 2008 China produced ~40% of global tiles.
– Zircon intensity of use in ceramics still low in developing countries.
• Strong demand growth recently in zirconium and zircon chemicals market (10% CAGR 1998-2008).
– China accounts for ~65% of global zircon demand in chemicals market.
– End uses include: pigments, abrasives, paper coatings, anti-perspirants, nuclear and industrial metals, fuel cells, cubic zirconia and many others.
Zircon Market Characteristics
Current demand (kt) ~1,150kt (2007-09 average)
Historical demand CAGR 3% p.a. (1980-2008)
Historical Price CAGR 8% p.a. (1980-2008)
2525
For
per
sona
l use
onl
y
Zircon DemandEnd Use Demand & Regional Tile Consumption/Production
Source: Iluka, TZMI and Ceramic World Review2626
For
per
sona
l use
onl
y
27
Global Zircon DemandUnderpinned by Developing Economy Demand
27
1990-07 Average Annual Growth
Total = 3%
China = 18%RoW = 1%
Global Zircon Demand Scenarios (1990 - 2020)
Demand Scenarios• Based on modest Chinese demand growth from
2011 of 6% p.a. (~ one third of recent levels) and flat rest of world (RoW) demand, global demand growth equates to ~3% (equal to 1990-07 average).
• If China demand growth is 8% (less than half historical average) and RoW 0%, global zircon demand growth would exceed historical levels.
• Difficult to envisage a demand scenario where near term zircon demand is lower than historical levels, given the major influence of developing and urbanising economies.
Source: Iluka27
For
per
sona
l use
onl
y
ZirconSupply and Demand Scenarios
• Assuming China demand growth of 8% & RoW 0%, results in a 2010-2020 CAGR of 4%
- Should this demand scenario occur an additional 50-60kt of new supply is required to meet the annual demand increase
- Since 1990 Chinese zircon demand has grown at 18% pa (off a low base)
• Even in the Low Demand (6% China, RoW 0%) scenario a considerable deficit is forecast
Source: Iluka28
0
500
1000
1500
2000
2500
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
kt
Iluka JA
Existing Producers
Low Demand (China 6% and ROW 0%)
Base Demand (China 8%, ROW 0%, 4% CAGR)
28
For
per
sona
l use
onl
y
Supply InducementEvaluation of Potential Supply
• Potential or mooted new sources of zircon are summarised in the table below. These range from exploration discoveries to projects at some stage of evaluation/feasibility study
• With the exception of Iluka’s Jacinth-Ambrosia expansion all projects are greenfield
• Based on China’s recent demand growth, 60kt of new supply is required to meet the annual demand increase for this market alone
Potential Project Current Stage of Evaluation
Estimated/Claimed Avg. Annual Zircon
production (kt)
Jacinth-Ambrosia debottlenecking / expansion (Iluka) Feasibility >50
Cataby (Iluka) Feasibility 50
Grande Cote (Senegal) Feasibility 75
Keysbrook (Aus.) Feasibility 15
Kwale (Kenya) Feasibility 35
Tormin (South Africa) Feasibility 35
Coburn (Aus) Feasibility 40
Athabasca (Canada) Under investigation 55
Cerro Blanco (Chile) Under investigation -
Cyclone (Aus) Under investigation -
Donald (Aus) Under investigation 85
Xolobeni (South Africa) Under investigation 15 2929
For
per
sona
l use
onl
y
30
• Iluka undertakes internal analysis of all known potential new mineral sands projects (concept to feasibility stage).
• Project economics are evaluated using publicly available information, industry benchmarking and internal expertise.
• Iluka assumes project proponents are “rational”, that is, a return will be sought above an appropriate risk weighted cost of capital
• Projects are evaluated from an economic perspective, excluding other considerations such as access to funding, country risk, marketability and technical risks.
• None of the potential/mooted projects are, to Iluka’s knowledge, at execution or capital approval phase.
• A number of the projects face ore body/country/technical and other risks which may be expected to delay project evaluation and approvals.
• A lead time from discovery to first production may be 5 to 10 years; from capital and project approval to first production may be 3 years+.
• Based on recent China demand growth and market share, annual incremental zircon production of ~60kt pa would be required, excluding expected continuing strong demand from other developing economies. New or mooted projects are TiO2 dominant with less than 10% zircon in the assemblage (compared to Jacinth-Ambrosia 50% zircon).
Supply InducementEvaluation of Potential Supply
30
For
per
sona
l use
onl
y
1,000 1,250 1,500 1,750 2,000
Existing
Zircon (kt)
0
250
500
750
1,000
1,250
1,500
1,750
2,000
2,250
0
Zircon (US$/t)
31
Indicative Zircon Long Term Supply Curve Higher Prices Required to Rationally Induce Greenfield Projects
• Iluka analysis of prospective projects shows that significant industry price rises needed to induce new supply
• This chart illustrates potential production from new or mooted projects and the zircon price required to induce new projects
2015 demand, assuming 4% CAGR from 2010
• Horizontal axis represents zircon tonnes (thousands) produced by existing producers and potential or mooted projects• Analysis assumes concurrent significant rise in rutile prices. Additional zircon price growth would be required under lower rutile prices• The above illustrates potential, sustained price increases required to meet demand, if lead times for new supply can be overcome• Iluka has capacity to increase production ahead of mooted projects• Actual prices may vary from indicated levels – refer disclaimer statement at commencement of presentation
2015 Zircon Cost Curve
Inducement Curve -flat rutile prices
Inducement Curve ~30% higher high grade titanium prices
31
For
per
sona
l use
onl
y
Zircon Substitution Risk
• Few substitutes provide equivalent value in use• Zircon typically = represents a low percentage of final products’ pricing
• Glazed and Porcellanato tiles (80% of global production), zircon = 5-10% of final product cost depending on tile type, quality and colour)
• TZMI study - low iron clays and feldspar cannot provide equivalent value in use
• Fused zirconia: zircon increased from 25% to 60% costs (‘03-’07) yet no substitution
• Chemical zirconia: zircon increased from 25% to 50% costs (since late ’90s) = switch to lower quality zircon
Ceramics
• Some evidence of substitution from chromite sand, cerabeads and kerphalite
Overview
Foundries & Refractories
Specialty Chemicals
• Lack of availability a potential cause of reduction in some lower value applications of zircon
Source: TZMI and Iluka research3232
For
per
sona
l use
onl
y
Zircon MarketSummary
33
• Market demand exceeded zircon supply in 2010
• Strong China and emerging economy demand expected to increase deficit over coming years
• Paucity of material new supply at a stage of advanced evaluation/funding
• Material price increases required to induce new supply- even then a lead time
• Substitution a low risk - zircon a small percentage of final consumer costs
• Iluka investigating opportunities to fill some part of the supply deficit
33
For
per
sona
l use
onl
y
34
Titanium Dioxide Feedstock Market
34
For
per
sona
l use
onl
y
Titanium DemandOverview
35
• Pigment is largest end use market of titanium feedstocks. • Historically, pigment per capita demand increases with living standards, measured by GDP per capita.• Impact of China has accelerated global pigment demand growth – China 2nd largest global pigment market.• China has domestic titanium sources but is reliant on imports for high grade pigment, which accounts for ~30% of Chinese demand.
– high grade pigments needed for automotive, whitegoods and other specialty applications. – China imports pigment from North America, Taiwan, Australia and Europe.
• Titanium metal market displays favourable dynamics with applications in aeronautics and other specialty manufactured goods. – titanium metal properties include strong and lightweight.
Titanium Market Characteristics
End use industries Pigment (91%), Metal (4%), Other (5%) (2009)
Current demand (kt) ~5,900kt (2007-09 average)
Historical demand CAGR 3% p.a. (1980-2008)- China 15% p.a., Rest of World 2% p.a.
Forecast pigment demand CAGR DuPont (Sept. 09) = 5 to 10% (over 2009-15)TZMI (Jun. 10) = 5.1% (over 2009-20)
Historical Price CAGR (%) 3.8% (1980-2008) (Average Chl. Ilm, Rutile, SR, Chl. Slag)
35
For
per
sona
l use
onl
y
Titanium Feedstock Market Segmentation
36
Titanium Feedstock (TiO2 grade)
Sulfate Slag• QIT Sorel Slag
• Chinese
Chloride Ilmenite• Iluka• Moma• Ukraine
Leucoxene and HyTi• Iluka• Bemax
Chloride Slag• RBM• Namakwa SR Std & Prem
• Iluka• TiWest
UGS• QIT
91% Slag• QMM Rutile/HyTi
• Iluka• Bemax
SREP• Iluka
95%85% 90%80%70%60%55%
TiO2Grade
High Grade Chloride
Chloride SlagChloride Ilmenite *
Sulfate Ilmenite Sulfate Slag
Note: Producer examples only (not necessarily exhaustive).* Leucoxene is included with ilmenite as these generally feed the same pigment plants and is a very small part of the chloride market.
Sulfa
teFe
edst
ocks
Chl
orid
eFe
edst
ocks
Sulfate Ilmenite• Chinese• Moma
36
For
per
sona
l use
onl
y
Titanium Dioxide End Use Demand
Pigment, 90%
Metal, 4%Other, 6%
Titanium Market Segments~6,050kt (2008)
Source: Iluka and TZMI 3737
For
per
sona
l use
onl
y
Titanium DemandPigment Demand Forecasts
38
• Historically, pigment per capita demand increases with living standards, measured by GDP per capita.• Impact of China has accelerated global pigment demand growth.
0
1000
2000
3000
4000
5000
6000
7000
8000
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020
Pigment kt
Global GDP per Capita and Pigment per Capita Global Pigment Demand
2012-20
3.5% CAGR
1980-08
3.1% CAGR
0.0
0.2
0.4
0.6
0.8
1.0
1.2
0 2000 4000 6000 8000 10000 12000 14000
GDP / Capita (US$)
Pigment (kg) / Capita
1980-2009 2010-2020
20082009
2010
2020
Source: IMF, DuPont, TZMI and Iluka
Period CAGR
DuPont (September 2009) 2009-15 5 to 10%
TZMI (June 2010) 2009-20 5.1%
Industry Pigment Forecasts
38
For
per
sona
l use
onl
y
0
1
2
3
4
5
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000
Pigment (kg) / person
Real GDP / Capita (US$)
Pigment Demand by Region, 1980 to 2009Developing countries pigment use growing with GDP
39Note: Conversion factor for US$ based on Purchasing Power Parity (PPP). Real 2008 Australian dollars.Source: TZMI and IMF
19802009
North America
Global
Japan
Europe
India
China
Asia
• Developing countries intensity of pigment use (pigment per person) expected to grow with living standards (rising GDP / capita).• Developed countries show an intensity of pigment use ~2 - 4 kg per person. This level of pigment use in China would be a
significant increase from current levels.
39
For
per
sona
l use
onl
y
Chloride TitaniumSupply & Demand
• Pigment producers typically require blend of feedstocks• Higher titanium feedstocks (e.g. rutile and synthetic
rutile) typically provide greater production efficiencies, less waste
• Substitutability between products not straightforward - limit to technical switching to lower TiO2 feedstocks)
• Iluka advantaged vis a vis rutile and synthetic rutile position
- both products in tight supply
Demand 2012-20
3.2% CAGR
40Source: Iluka
40
For
per
sona
l use
onl
y
Titanium Market Summary
41
• Titanium feedstock demand and supply factors more complex- influenced by raw material feedstock requirements of pigment plants- supply availability of specific products globally
• Iluka has idled synthetic rutile capacity given inadequate returns
• Most upgrading capacity committed or idled- industry economics would not support investment in additional upgrading capacity
• The high grade titanium market has tightened significantly in 2010
• Evident tightness of some products- influenced by lack of availability of new material production sources (e.g rutile)- delays in project ramp up
• Favourable factors for higher than historical titanium prices- tight market supply conditions- recovery in pigment demand- China demand for imported chloride pigment- recovery in niche markets (including titanium sponge/metal)- unconstrained pricing environment
41
For
per
sona
l use
onl
y
42
Current and Evolving Market Conditions
Chris Cobb
42
For
per
sona
l use
onl
y
43
Current Market ConditionsZircon
• Strong recovery in demand from Q4 2009
• China consumption above pre GFC levels
• US market remains buoyant – esp. foundry sector
• Additional China milling capacity installed in 2010
• Some plants idled due to no feedstock
• Tight market conditions expected to continue
• Customers globally on minimal stocks
• Demand from customers in excess of supply
43
For
per
sona
l use
onl
y
44
Current Market ConditionsZircon Pricing and Contractual Arrangements
• Zircon volume arrangements essentially on a “spot” basis
• No contractual arrangements in excess of 3 months
• Logistics chain (ex warehouse, small lot) developed to cater for China market
• Warehouses operating already in Europe and planned for South America
• Iluka has achieved 3 substantial price increases in 2010
• Price rises advised to customers approx 1 month in advance
• Iluka seeking to allow customers to pass on price increases
• Significant opacifier price increases reported globally
44
For
per
sona
l use
onl
y
45
Current Market ConditionsZircon Pricing and Contractual Arrangements
• Average zircon price reflects quality differentials
• Price to exit 2010 at greater than US$1000/t FOB
• Continued tight supply conditions expected
• Further upward price momentum in to 2011
• Internet Online Sales site now auction or sale
• Currently both zircon and rutile auction on site
45
For
per
sona
l use
onl
y
46
Current Market ConditionsTitanium Dioxide
• High grade feedstock market tight in 2H 2010
• Anticipated it will remain so going into 2011
• Idled Iluka kiln capacity is impacting high grade feedstock availability
• 2010 saw disruption of production from Eastern Europe
• Iluka in 2010 still had products under long term contractual arrangements
• Small amount of additional un contracted synthetic rutile (SR) production sold at higher prices
• Anticipated low stock position for all high grade feedstock at the end of 2010
• Customers are very concerned over availability of high grade feedstocks
• Significant pigment price increases reported globally
• Reported rationing of supply occurring due to shortage of pigment
46
For
per
sona
l use
onl
y
Warehouse alternative - Internet Sales and Auction Site
Key Terms
• Purchase or auction site as required• Minimum purchase 26mt, a full container load• Product bagged in 2mt Bulk Bags• Payment terms are L/C or T/T • No requirement to accept any offer
Easily adapted to other products
• Now offering both zircon and rutile• Ilmenite
www.ios.iluka.com
47
For
per
sona
l use
onl
y
48
Synthetic Rutile Strategy
• 2 of 4 kilns idled over 2008/2009, reducing SR capacity by ~300k tonnes
• Inadequate EBIT returns led to decision to idle
• Iluka indicated intention to idle SR3 (Mid West, WA) from mid 2010
• Higher spot product prices have enabled the kiln to run to end of 2010
• Iluka’s intent is to run SR3 as R&D kiln until mechanical failure
• SR3 will require a major rebuild (circa A$15m plus) to commence a new campaign
• Murray Basin and Jacinth-Ambrosia Ilmenite blends to be trialed
• Technical success potentially provides a low cost ilmenite feed source
• 1 kiln operation in 2011 - ~ 200kt of SR production
• Re-activation of an additional kiln in 2012 is under consideration
48
For
per
sona
l use
onl
y
49
Emerging Market ConditionsEnd of Cap and Collar Contractual Arrangements
• Most of Iluka’s legacy Ti02 contracts have had “cap and collar” pricing
• Volume commitments with pricing increases/decreases constrained
• Increases linked to CPI or low percentage increases – typically low single digits
• All rutile legacy cap and collar contracts conclude in December 2010
• Only 1 legacy SR contract remains until December 2011
• This residual cap and collar SR contract considered immaterial to influence pricing
• It is believed RBM titanium (slag) cap and collar contracts may extend beyond 2011
• Exxaro reportedly has 80% of 2011 slag sales not subject to price caps
49
For
per
sona
l use
onl
y
50
Approach to Titanium Dioxide Contracting
• Iluka has insufficient feedstock to meet all its customers requirements in 2011
• Major customers have been offered a proportion of their requirements
• Volume commitments on all products in 2011 to be for a maximum of 1 year
• Iluka does not intend to contract all planned production in 2011
• 2011 pricing negotiations are underway
• All prices on initial 3 to 6 month volume basis only
• A small residual volume held back and available for “spot” sales
• Rutile has greater value in use than titanium slag to maximize output
• High Ti02 offsets lower grade feedstocks i.e. 86% to 87% Ti02
50
For
per
sona
l use
onl
y
51
Approach to Titanium Dioxide Contracting
Welding Market
• Flux core wire electrode market is also strong
• Higher prices will also flow through in to this sector
• Iluka’s web based sales portal (IOS) one of the outlets for these sales
Titanium Metal
• Rapidly growing segment of usage of high grade Ti02 feedstocks
• Chinese expansion driven by manufacturing demand for titanium metal
• New generation of Boeing aircraft will drive western demand
51
For
per
sona
l use
onl
y
52
Summary
In summary
• Zircon supply extremely tight, indications are it will remain so for immediate future
• High grade Ti02 feedstocks now following the same path
• Historical constraints of the lower term contract in Ti02, and annual pricing in zircon, are gone
52
For
per
sona
l use
onl
y
53
China Market
Stephen Hay
53
For
per
sona
l use
onl
y
The China Zircon Market
China Zircon Segments 2009
Ceramics55%
Zirconia & Chemicals
29%
Other7%
Foundry/Casting5%
Refractory4%
China ~ 40% of global zircon sand consumption
Ceramics ~ 43% of world
ZrO2/Chemicals ~ 65% of world
Casting ~ 17% of world
Refractory ~ 13% of world
Other ~ 50% of world
Total China Market ~ 400kt zircon
54
For
per
sona
l use
onl
y
The China Zircon Market
Major zircon sand consumption regions
Developing zircon sand consumption regions
Major zircon warehouse locations
55
For
per
sona
l use
onl
y
The China Zircon Market
• Over 70% of zircon sales are direct between Iluka and end users
• Customer Profile
- Some large SOEs- Mostly small to medium sized private enterprises
• Sales Options
- Bulk bags ex China warehouse (4 strategically located warehouses)- Bulk shipments direct to nominated port- Container shipments direct to nominated port (loose or in bags)
• Sales Contracts
- Price and quantity range from spot through to quarterly fixtures- Flexible but secure payment options - Sales transactions range from 20 tonnes through to 10,000 tonnes
56
For
per
sona
l use
onl
y
The China Zircon Market
Over 90% of zircon consumed in China is imported
Total Chinese Zircon Consumption: 2007 - 390kt
2008 - 410kt
2009 - 390kt
2010 - 460-500kt (supply constrained)
Monthly China Import Comparison
-
100,000
200,000
300,000
400,000
500,000
600,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
tonnes
07 Cum 08 Cum 09 Cum 10 Cum
For
per
sona
l use
onl
y
The China Zircon Market
Iluka sales in China reached 180kt in 2008 (excl CRL zircon sales)
During Q3, 2010 Iluka YTD 2010 sales exceeded FY 2009
Iluka Zircon Sales to China
020000400006000080000
100000120000140000160000180000200000
2004 2005 2006 2007 2008 2009
mt
0%
10%
20%
30%
40%
50%
60%
% of Iluka Sales
China % China Sales
58
For
per
sona
l use
onl
y
The China Zircon Market
Trends and Challenges
• Customer expansions (little aggregation)
• Undersupply: customer allocations
• Focus on quality
• Environmental and worker safety concerns (e.g. power usage, radiation in some zircons)
59
For
per
sona
l use
onl
y
The China Titanium Minerals Market
China TiO2 Segments 2009
Pigment75%
Ti Metal14%
Welding and Other11%
Total China Market : 1.1-1.2Mt TiO2 units
> 1Mt as sulphate ilmenite used directly or in domestic slag
The rest as imported slag and domestic and imported rutile and synthetic rutile
China ~ 24% of global titanium feedstock consumption (in TiO2 units)
Pigment ~ 20% of world
Ti Sponge ~ 30% of world
Welding/Other ~ 40% of world
Current Est. Annual Iluka Sales to China
Ilmenite ~ 260kt (incl CRL)
Rutile ~ 10 -15kt (incl CRL)
Total ~ 13% of China consumption
60
For
per
sona
l use
onl
y
The China Titanium Minerals Market
Major titanium minerals consumption regions
61
For
per
sona
l use
onl
y
The China Titanium Minerals Market
• All sales are direct between Iluka and Chinese customers (no distribution contracts)
• Customer Profile
- Pigment customers are mostly SOEs- Welding customers are mostly private enterprises of varying sizes- Ti metal customers are a mix of very small private companies through to very large
SOEs
• Sales Options
- Mostly bulk shipments direct to nominated port- Container shipments direct to nominated port (loose or in bags)- Some ex China warehouse sales
• Sales Contracts
- Price and quantity all on spot- Flexible but secure payment options - Sales transactions for ilmenite mostly bulk sales of more than 10,000 tonnes- Rutile sales range from 100 tonnes up to 10,000 tonnes 62
For
per
sona
l use
onl
y
The China Titanium Minerals Market: Pigment
Chinese Pigment Demand
0
200
400
600
800
1000
1200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
'000 tonnes
Pigment Production Net Imports Apparent Consumption
Pigment production and consumption likely to resume sharp upward trend in coming years
Major producers predicting 2010 Chinese consumption to far exceed 1Mt – perhaps even as much as 1.5Mt
• Imports of high grade pigment (250kt-300kt in 2007 and 2008) set to continue growth – fuelling production outside China
• Chinese pigment production almost 100% sulphate technology (requiring low grade/low value, mainly domestic, feedstock)
BUT…
• Major new chloride pigment projects are under construction (requiring high grade, mainly imported, feedstock) 63
For
per
sona
l use
onl
y
The China Titanium Minerals Market: Outlook
• Chinese production in all sectors to grow rapidly based on solid domestic demand growth and increasing acceptance in foreign markets
• Solid growth opportunities for Iluka high value feedstock in:
- Chloride pigment- New generation titanium sponge- Flux cored wire welding
• Strong upside potential from new opportunities in existing and new Chinese operations stemming from Iluka’s Product and Technical Development
64
For
per
sona
l use
onl
y
China Office
The Iluka China Office was established at Shanghai in early 2008
Photo 1
65
For
per
sona
l use
onl
y
Logistics
Iluka storage and distribution facility near Shanghai66
For
per
sona
l use
onl
y
Conducting Business
67
For
per
sona
l use
onl
y
The China Market: General Comments
• Demand in China linked to domestic property and construction sectors
• Correlation of mineral sands to Chinese construction activity not strong:- Demand for paint and ceramics in buildings largely post sale of completed
structures or units- Strong demand for paints and ceramics in light renovations or decoration
• Government intervention in Chinese property market not likely to have a big impact:- Property markets in four big cities (Beijing, Shanghai, Guangzhou, Shenzhen) ~
5% of total China property sales H1, 2010- Property sales in China’s tier 3 cities in 2010 increased from 2009; ~ 64% of total
China sales- Total property sales in China forecast to increase in Q4, 2010
Source: China Economic Review: Sept 2010
68
For
per
sona
l use
onl
y
The China Market: General Comments
• Heavy new development in emerging tier 1 and tier 2 cities eg Binhai (Tianjin), Liangjiang (Chongqing) and Chengdu (Sichuan)
• Ongoing heavy investment in development of western provinces
• Fast-tracking the national high speed rail network
• Acceleration of export opportunities post GFC
69
For
per
sona
l use
onl
y
70
Summary and Q&As
David Robb
70
For
per
sona
l use
onl
y
71
Iluka’s Marketing Priorities
• Stay disciplined
• Continue to differentiate Iluka in our customers' eyes in relation to - quality products - supply and service efficiency and responsiveness- minimize costs to the benefit of both parties- provide price direction for zircon
• Enhanced customer offering, including: - product development and enhancements - technical support to customers to improve their production efficiency
• Innovation, prudent risk-taking
71
For
per
sona
l use
onl
y
72
Iluka’s Marketing Priorities
• Continue to build momentum and market penetration in China- both zircon and high grade titanium dioxide- distribution arrangements in central and western China- technical assistance for high grade feedstocks in pigment manufacturing
• Build Iluka’s market presence in other developing economies- South America, India, other emerging Asian economies
72
For
per
sona
l use
onl
y
Closing Statement
Closing SlideIluka Resources LimitedFor further information refer www.iluka.comContact: Dr Robert Porter, General Manager, Investor [email protected]+61 407391829
For
per
sona
l use
onl
y
74
China Market
Back Up Slides
74
For
per
sona
l use
onl
y
The China Zircon Market
Estimated Monthly Zircon Sales in China
• Market turned down sharply at end of 2008 and consumer stocks built rapidly
• Consumer stocks fuelled consumption during H1, 2009 and producer stocks built rapidly
• Market rebounded strongly in H2, 2009 and consumer stocks had been exhausted
• Market continued to grow rapidly in 2010 and all producer stocks exhausted by May
• Market has been supply constrained since May resulting in shortage of ~ 10kt per month
Period Av. Sales/month2008 ~ 40kt
H1, 2009 ~ 14ktH2, 2009 ~ 50kt
H1, 2010 ~ 55kt
75
For
per
sona
l use
onl
y
The China Zircon Market
China Zircon Imports
050
100150200250300350400450500
2006 2007 2008 2009 2010*
'000 tonnes
Indonesia Australia South Africa Other
* 2010 is Jan-Aug only
• Australia sourced zircon a major influence in the China market
• South African producers targeted China through 2009 and H1, 2010
• Supply from South Africa averaged over 20kt per month from Jan-May 2010 but only 11kt per month from May onwards
• Supply from Indonesia rose rapidly in 2006 and 2007 but now has significantly diminished 76
For
per
sona
l use
onl
y
The China Zircon Market
Global and Chinese Zircon Consumption
0
200
400
600
800
1000
1200
1400
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*
'000 tonnes
0%5%10%15%20%25%30%35%40%45%
China Rest of World China % of World
* 2010 is forecast for full year
• China has grown rapidly to more than 40% of global zircon consumption
• Actual zircon consumption in China in 2010 will probably grow by more than 20% on 2009
• Average annual growth rates of more than 15% per annum appears set to continue in China77
For
per
sona
l use
onl
y
The China Zircon Market: Other Sectors
• Major zircon demand to be fuelled mainly by:
- Fused zirconia for ceramic pigments and refractories for manufacture of construction glass (including export markets like India)
- Chemical zirconia for wide range of applications including advanced ceramics, lifestyle products and zirconium metal in nuclear fuel rods
- Refractories for steel production
- Precision casting foundries for manufacture of precision industrial products and sporting equipment
78
For
per
sona
l use
onl
y
The China Zircon Market: Ceramics
Chinese Ceramic Tiles
0500
1000150020002500300035004000
2003 2004 2005 2006 2007 2008
Million sqm
Production Consumption
• Preliminary data for 2009 indicates another significant increases in both production and consumption
• 2010 has again seen further strong growth
• Ongoing rapid growth to be driven by domestic property and construction sectors AND strong growth in exports
79
For
per
sona
l use
onl
y
The China Zircon Market
Iluka China Zircon Market Share
0%5%
10%15%20%25%30%35%40%45%50%
2004 2005 2006 2007 2008 2009
Iluka’s zircon market share in China since 2008 has matched or exceeded its global market share
80
For
per
sona
l use
onl
y
The China Titanium Minerals Market: Ti Metal
Chinese Ti Sponge Production
0
10000
20000
30000
40000
50000
60000
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
tonnes
In 2009 China ~ 30% of global Ti sponge production
• Mostly consumes domestic slag to make the TiCl4 feedstock
BUT…
• There is now one major TiCl4 producer, and two other major producers that will be operating within the next 6-12 months, using imported high grade titanium minerals
81
For
per
sona
l use
onl
y
The China Titanium Minerals Market: Other
• Relatively small segment but China makes up approximately 40% of the world’s consumption in this category
• Consists mainly of welding- Flux Cored Wire (requiring high grade feedstock – 25-30kt per year in China)- Welding Rods (requiring low grade feedstock)
• Flux Cored Wire - a solid future based on rapid growth of the Chinese ship building industry.
82
For
per
sona
l use
onl
y
