Review and Outlook for China's Iron Oxide Pigment Market   

By Lin Zhihua, Iron Oxide Industry Branch of China Coating Industry Association

1  Review of 2011

According to preliminary statistics, in 2011 China's iron oxide industry achieved a total production capacity of 800 000 t/a, an annual output of about 654 000 tons, an industry-wide production vs. sales ratio of about 97%, a domestic sales volume of about 264 000 tons, up 8.2% year on year (yoy), and an export volume of about 325 000 tons, down 10% yoy.
   In 2011, the domestic iron oxide pigment market shifted from "bullish" to "bearish." In the first half of the year, China's iron oxide production and sales were booming, and iron oxide prices remained at a high level. But in the second half, due to the slowdown in the growth of domestic housing residential construction, coatings and related industries, the demand for iron oxide pigment dropped, so the production and sales of the product fell about 10% compared with the first half of the year.
   Due to RMB appreciation and domestic inflation, China's export of iron oxide declined in 2011. Although exports to South America and Africa continued growing, exports to Europe, Southeast Asia, North America, Oceania and the Middle East all declined. More specifically, exports to Southeast Asia fell about 24% yoy, and exports to Europe and Oceania dropped by more than 10% yoy.
   At the end of the year, iron oxide pigment inventories in China were nearly 100% higher than in December 2010, so the industry faced pressure in both international and domestic markets. In addition, according to national policy for saving energy and reducing emissions, the iron oxide industry's space for development will be restricted due to its environmental pollution and energy consumption issues. To this end, major domestic iron oxide enterprises are actively transforming their equipment and production environments and upgrading their product structures. This affects the industry's growth pace.

2  The 2012 outlook is not optimistic

Considering the current economic situation at home and abroad, the overall outlook of China's iron oxide industry's prospects in 2012 are not too optimistic. It is expected that the industry will experience a "cold winter," financially, in the first half of 2012. Whether the decline can be stopped in the second half of the year is now difficult to predict. Such a forecast is based on the following:
   First, the world economic situation will not be good in 2012. The impact of the European credit and debt crisis is still going on, the recovery and development of the manufacturing sector will take some time, housing markets at home and abroad are still sluggish. All these will have negative impacts on the development of the domestic iron oxide pigment market.
   Second, domestic raw materials and energy prices are rising. Due to the slowdown of the steel industry, the supply of metal wastes and offcuts needed for the production of iron oxide pigment is reduced, causing a rise of raw material prices. The price hikes of coal, electricity and other energy as well as acid, alkali and other chemical products will make the production cost of iron oxide pigment continue to increase.
   Third, domestic and international market competition becomes increasingly fierce. Recently, while the U.S. manufacturing sector is rebounding, Lockwood will build iron oxide plants in the United States; LANXESS will construct a new iron oxide production base in Ningbo, China; and some domestic enterprises are also building new iron oxide projects or expanding their existing plants. Iron oxide output is increasing, but domestic iron oxide inventories are difficult to sell, so in the short term the domestic iron oxide market can hardly recover, and market competition is intensifying.
   Fourth, small producers frequently launch price wars to fight for the market share. In some areas, due to low industrial entry barriers and lax environmental management, some small iron oxide producers disregard the environment in order to increase profit margins. They can produce iron oxide at lower "costs," so they frequently launch price wars to wrest market share from large producers.

3  Strategies to deal with the 2012 market downturn

China's iron oxide industry will suffer a "cold winter" in 2012, but the Chinese government pays great attention to the development of the real economy and tries to provide various incentives to the latter. This has created a good macro-environment for the development of the iron oxide industry.
   At the same time, the iron oxide industry also has its own advantages in the comprehensive utilization of wastes and in the conservation of alternative resources. In 2011, China's iron oxide industry comprehensively utilized 516 000 tons of metal wastes and offcuts; and through the utilization of waste acid, waste alkali and waste heat, it conserved resources worth about RMB1.856 billion.
   Faced with current unfavorable market situations, domestic iron oxide producers should take the following strategies to deal with them:
    1) Do not afraid of difficulties or challenges, but use quality products and good services to expand the domestic market, stabilize China's role in the international market and explore emerging markets;
    2) Upgrade production facilities and products, and eliminate outdated ones;
    3) Further strengthen technological innovation, and actively promote cleaner production technologies to enhance overall market competitiveness.