2008 Titanium Feedstock Industry Performance

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The 8th edition of TZ Minerals International's annual Comparative Cost Study of 24 titanium feedstock operations in 2008 has just been released. The R/C ratio for the industry has improved from 1.44 in 2007 to 1.55 in 2008. This was largely driven by increased pig iron prices, which benefited the slag producers in South Africa, Canada and Norway. The synthetic rutile producers were adversely affected by lower zircon revenue. The R/C ratio for the industry will be lower in 2009 as a result of lower production volumes and a reduced pig iron price.

TZMI (http://www.tzmi.com/default.aspx) has just released the 8th edition of its annual Comparative Cost Study of 24 titanium feedstock operations in 2008, accounting for 81% of global titanium mineral production and 86 % of zircon production.

The major performance parameter, the revenue to cash cost ratio (R/C ratio), increased slightly from 1.44 in 2007 to 1.55. This ratio has been remarkably steady since 2002 onwards being in the range 1.43 to 1.55.

This slightly better overall industry performance camouflages some substantial divergent trends.

  • By far the greatest source of margin improvement related to the 60% revenue increase from co-product pig iron, with the recipients of this windfall benefit being the five slag producing operations - three in South Africa, one in Canada and one in Norway.
  • South African slag producers received further additional benefit because of the 17% devaluation of the rand against the US dollar during the year.
  • As a consequence, Richards Bay Minerals further improved its position as the leading operation.
  • The three synthetic rutile operations suffered adversely, as all reported lower zircon production and revenue plus the negative impact of higher costs.
  • With the exception of the relatively small sulfate ilmenite group, co-product credits contributed more than 100% of the cash margins experienced in 2008, enabling operations to continue selling feedstocks at prices lower than costs.

The following preliminary comments can be made about 2009 :

  • As the sharp rise in pig iron prices has already been reversed, so there will be definitely be substantially lower pig iron revenue.
  • The impact of higher power costs, particularly in South Africa should become more apparent.
  • There is also expected to be lower revenue contributions from both titanium minerals and zircon due to lower production levels.
  • The outlook therefore is for the R/C ratio for the industry to return to close to the bottom of the range that has prevailed since 2002.
  • Despite the large increases in zircon and pig iron prices that were seen during the mid-decade resources boom, the overall industry has not prospered in the same way as many other resource sectors. There is still great concern that some operations are at or below cash break even.

ABOUT TZMI
Headquartered in Australia, TZMI operates a team of expert consultants from global locations including Australia, South Africa, China, United States and Europe. With over 100 years of accumulated experience, TZMI's principals have been closely involved in the mineral sands and TiO2 pigment industries since the 1970s. TZMI specialises in confidential consulting services for the titanium minerals, zircon, titanium sponge and TiO2 pigment industries as well as publishing specialised market studies and reports based on its comprehensive database of production and market data.

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Gavin Diener
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