Iron Oxide Sector in China Faces Reshuffling

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

Financially, the growth of the iron oxide sector in China slowed down somewhat in the first half of 2013, but a relatively sound and stable status was maintained overall. Iron oxide output was 360 kt during January-June, the same as in H1 2012. The sales revenue was RMB1.755 billion, a drop of 2.5%. The total import and export value was around US$243 million, a drop of 0.8%. The export volume was 171.6 kt and the export value was US$178 million. The import volume was 111.6 kt and the import value was US$65 million. Table 1 shows the economic data of the iron oxide sector in China in the first half of this year.

1. Upgrading of traditional sectors

Industrial integration of the iron oxide sector in China is being continued this year on the basis of achievements made last year. The sector’s advantages in capital and practical technology are being used to integrate, renovate and upgrade traditional sectors.
   The 200 kt/a iron oxide new coloring material project of Shanghai Huayi (Group) Co., Ltd was launched in Jiangsu Yixing Economic Development Area in the first half of this year. The project uses the “third-generation technology” developed by Shanghai Huayi Group Central Research Institute. The iron oxide production will therefore protect the environment, conserve energy, minimize emissions and yield products of reliable quality. There will be strong market competitiveness and bright development prospects. The first phase (100 kt/a) will be completed and put on stream in 2014. A strong-strong consortium of two key enterprises Shanghai Yipin Pigments Co., Ltd and Jiangsu Yuxing Industry & Trade Co., Ltd will thus be formed.
   Anhui Rely Technology Co., Ltd and Cathay Industries Group jointly invested RMB200 million at the beginning of this year to construct a 100 kt/a iron oxide unit (with quite a few enterprises holding stakes). LANXESS Pigments Co., Ltd started the construction of a 25 kt/a iron oxide unit in Zhejiang Ningbo New Technology Park at the beginning of July. These projects indicate the trend of strong-strong cooperation in the iron oxide sector and the new measures of foreign enterprises in China.
   With these efforts to expand capacity and increase output, over 75% of capacity is controlled by large companies. Favorable conditions will be provided for upgrading capacity and product quality, conserving energy, reducing emissions and moving toward clean production. The entire iron oxide sector in China will develop constantly toward resource conservation, environment-friendliness and technical innovation.
   This year will be a year of reshuffling for the iron oxide sector. The capacity of new production/marketing consortiums formed by enterprises with advantages in branding, technology and capital is already more than 600 kt/a. Still, capacity tends to exceed sales volume. Pressure and competition in the iron oxide market will therefore be aggravated. The options of weak enterprises will shrink. Perhaps some enterprises will be forced to quit the iron oxide market in 2014.

2. New growth driven by urbanization

Ongoing urbanization will bring about more and more construction projects. The continuing demand for more and better inorganic colored pigments, construction materials, coatings and plastics will become important directions in the transition of the iron oxide investment structure. These will also be major target markets for the iron oxide sector. The total output of coatings in China reached 12.7 million tons in 2012, an increase of 11.78% over the previous year, and China remained the biggest producer of coatings in the world.
   Despite the development of the construction sector promoted by new urbanization, it will take time for it to foster greater consumption of pigments. It is expected that the revenue stream of the iron oxide sector will start increasing after 2-3 years.

3. Analysis of future market

The price of iron oxide pigments in China was basically stable in the first half of this year. The ex-factory price was RMB6 500-7 000 per ton for iron oxide red, RMB6 600-7 000 per ton for iron oxide yellow and RMB4 500-6 000 per ton for iron oxide black. Output was nearly equal to sales volume. The overall status of the iron oxide pigment market is sound. This good situation is expected to continue into the second half of this year. Profits of iron oxide pigments increased slightly, mainly due to a price drop for scrap iron. The price of scrap iron was always low in the second quarter and even declined. The reduction of this raw material cost indirectly increased the profit margin of iron oxide pigments. The constant increase of labor costs, however, will possibly lead to fluctuations of the iron oxide market price in the second half of this year.
   While actively expanding overseas markets, iron oxide producers in China have also made greater efforts to secure a share of the domestic market. Domestic iron oxide pigments are replacing imported products. The export volume of iron oxide pigments increased slightly in the first half of this year, whereas the import volume dropped.
   Overall, the market demand for iron oxide in China is stable. The prices for big clients remain the same, but they have gone up a bit for medium and small clients.
   It is expected that the market will still be sound in the second half of this year, with no considerable changes.      

Table 1  Performance of the Iron Oxide Sector in China, H1 2013 (kt)
Item    H1 2011    H1 2012    H1 2013    YoY Growth (%)
Output    340    360    360    0
Sales revenue (RMB billion)    1.70    1.80    1.755    -2.50
Sales volume    320    307    310    0.98
Domestic consumption    125    148    150    1.35
Export volume    177.0    159.0    171.6    7.55
Export value (US$ million)    179    177    178    0.56
Average export price (US$/t)    1012.3    1113.0    1039.0    -6.65
Import volume    129    113    116    2.92
Import value (US$ million)    78    68    65    -4.20
Average import price (US$/t)          605    600    558    -7.0
Inventory    25    30    35    16.67