One of the world's leading experts on industrial chemicals explains the convoluted market for fluorspar, a component of many household products. In this interview with The Critical Metals Report, IHS Chemical's Ray Will explains how a rebound of the global supply of fluorspar is tied to the fluctuating trade agenda of the mineral's largest consumer, China. Learn why Canada and Mexico are poised to increase production of the valuable raw material using previously abandoned mines and new technologies.
The Critical Metals Report: Let's start with the basics. What is fluorspar?
Ray Will: Fluorspar is the commercial term for a geologically somewhat abundant mineral. Major fluorspar deposits are located in South Africa, Mexico, China and Mongolia. Historically, the mineral was used in ceramics manufacture as a fluxing agent, helping the enamel stick to porcelain in the firing process. It is used in the making of steel. It is a raw material for fluorocarbons and fluoropolymers. The fluorine atom provides part of the chemical backbone of many pesticides and blockbuster pharmaceuticals such as Lipitor.
TCMR: "Fluorspar" is a trade name?
RW: By definition, fluorspar is the name of a commodity. It's not a registered trademark. Fluorspar contains fluorine, which is an element. The mineral itself is known as fluorite -- its chemical symbol is CaF2, calcium fluoride. There are two common grades of fluorspar. "Metspar" stands for metallurgical-grade fluorspar. "Acidspar" stands for acid-grade fluorspar. There are also ceramic grades and a product grade used in making cement.
TCMR: What is the significance of acid grade?
RW: Acid grade has a high quantity of calcium fluoride. There are fewer impurities in acid grade. It's more highly refined, or "beneficiated," which is a mining minerals term.
TCMR: What kind of household products use this critical element?
RW: Fluorine is a critical part of our daily lives. I'm presuming that you brushed your teeth this morning with a fluoride-containing toothpaste. You may have eaten eggs fried on a nonstick pan coated with polytetrafluoroethylene [PTFE], also known by the DuPont trademark, Teflon. Your car's air conditioning system uses a refrigerant known as HFC-134a, a fluorocarbon containing fluorine. In your workplace, chances are that the HVAC system uses a fluorine-containing refrigerant called HCFC-22. If you wear a rain-protected jacket, like Gore-Tex, or a competing product, it incorporates a PTFE layer, which is a membrane that allows you to feel dry and comfortable, even if you're perspiring. Those are just some of the examples where fluorine plays an important role in modern life, giving us safety and comfort.
TCMR: What factors affect the price of fluorspar?
RW: As with all commodities, the price of fluorspar is determined by supply and demand. Beginning in the second half of the 1980s, China flooded the fluorspar market. The market price fell below the cost of production, which caused mines in North America to fail. Until about 1995, prices were in a falling pattern, reflecting both the abundance of fluorspar in the market and the phaseout of chlorofluorocarbons [CFCs]. CFCs, as you may recall, are one of the causes of stratospheric ozone depletion, and they were banned by the Environmental Protection Agency with the Montreal Protocol.
After 2003, China rapidly developed as a manufacturing powerhouse, accompanied by rising affluence and improved living standards. As its economy vertically integrated, China started adding value to its domestic fluorspar production and restricted its exports. By 2008, China had greatly increased its exports of downstream products made from fluorspar, particularly fluorocarbons and fluoropolymers. Essentially, China switched from focusing upon supplying the mineral to becoming a competitor in the fluorspar-derived product market. It became the most important fluorspar consumer in the world.
Eventually, the World Trade Organization brought an action to end China's restraint of fluorspar exports and China is obligated to comply. The major producing countries, in rank order, are China, Mexico, Mongolia and South Africa.
TCMR: What about North America?
RW: Historically, the U.S. has been a producer of fluorspar, but most of its economic fluorspar has been mined out -- although Hastie Mining, a family-owned firm, is opening a somewhat small fluorspar mine in Kentucky near the Illinois border. Mexico remains a very potent producer. It has a very generous allocation of fluorspar, which is relatively inexpensive to mine.
TCMR: Who are the players in Mexican fluorspar?
RW: Mexichem (OTCPK:MXCHF), a subsidiary of the privately owned Mexican conglomerate Grupo Empresarial Kaluz, S.A. de C.V., runs the largest fluorspar mine in the world. It is a model of integrated mine-to-chemical operation. There are similar examples of operational integration in China.
TCMR: How is fluorspar mined and refined?
RW: It can be a manually intensive process. At its simplest form of extraction, an exposed vein of fluorspar is hand mined out of the ground. By hand sorting, color identification and washing, miners can obtain ceramic-grade fluorspar, or even metallurgical grade. However, it's highly unlikely that one can achieve acid grade by hand sorting. As a result, acid-grade mining requires additional beneficiation, or refining, to meet the market standard.
The Mexichem operations in San Luis Potosí, Mexico, are more technologically sophisticated. Mexichem uses all underground, earth-moving equipment. There is no hand mining.
TCMR: Are the fluorspar refineries generally close to the mines, or is transport involved?
RW: It really depends on which part of the world. Mexichem, for instance, mines and refines on-site. Although, as its business evolved from a single mine to operating many mines in Mexico, it built a trucking link between them because the beneficiation activities tended to be in one area and they are not mobile. They are also a significant investment. In places like Mongolia, where it is important to quickly add value to the mined mineral, the imperative for venture capital to invest in beneficiation is important.
TCMR: What new technologies can improve fluorspar mining?
RW: In conventional mining operations, nothing radically different has affected the supply of fluorspar. But in advancing the supply of fluorine, which is a component of fluorspar, new technology has improved the use of fluorosilicic acid, which is a co-product in the manufacture of phosphate fertilizer.
TCMR: How does that work?
RW: Fluorine exists in abundance in Morocco, in Florida and in certain locations in China, where phosphate rock is processed to make phosphoric acid and phosphate fertilizers. There is proven technology to process the phosphate mine ponds, the lagoons where the fluorine containing co-product, fluorosilicic acid, is now stored in dilute and impure form. Concentrating and purifying this source of fluorine takes care of an environmental hazard, isolating the fluorosilicic acid at zero transfer cost. It cleans up the environment and the purified fluorosilicic acid becomes a raw material that equals fluorspar as a source of industrial fluorine.
End uses include fluoridated drinking water and any of the downstream chemical products that depend upon fluorspar as a raw material.
TCMR: What companies do this?
RW: In North America, The Mosaic Co. (NYSE:MOS) and PotashCorp. (NYSE:POT), with its subsidiary PCS Phosphate and private company J.R. Simplot, now isolate fluorosalicic acid for drinking water fluoridation and other uses. There are some very large plants that are considering fluorosilicic acid isolation and purification in various places, including Morocco. These are not small firms. Fluorspar and its downstream products are contained within a fairly concentrated industry.
TCMR: What is the situation for fluorspar in Canada?
RW: There is a good concentration of fluorspar in the St. Lawrence region. Mines had been producing in this region until 1978, but operations were discontinued because the market price fell lower than the cost of production. Canada will provide more certainty to this commodity market, which has the potential to be buffeted by disruptive, politically charged events, such as the situation requiring the WTO action against China.
Contrast Canada to what's happening right now in South Africa, where we've had very significant turmoil in mining labor, with strikes and three dozen miners killed. Despite the fact that fluorspar is abundant in South Africa, the political events created doubt in the country's stability. It makes Canada look all the more safe and secure.
New development in the St. Lawrence region is dependent upon rising prices. Mind you, in the last three to six months, the price of fluorspar has been falling. That is mostly attributable to a demand weakness in Europe's economy.
TCMR: Where is the price of fluorspar headed?
RW: From 2008 through 2011, the price was extraordinarily high -- somewhere between $310-450+ per metric tonne [mt]. I think we're going to see the price fall back to a historical norm -- probably much less than $250/mt. The Mexican-delivered price to the U.S. is trending at $150-175/mt. There is a difference, however, between the quality of Mexican-derived fluorspar and Chinese-derived fluorspar. The Mexican fluorspar often has high quantities of arsenic, which isn't tolerated by all the users of fluorspar, whereas the Chinese material has much less arsenic and other impurities that are detrimental to downstream users of fluorspar. Mexico's largest producer, the aforementioned Mexichem, has perfected the purification of acid-grade fluorspar with low arsenic.
TCMR: Are there any Western fluorspar companies that are operating in China?
RW: The major fluorocarbons/fluoropolymers producers operate joint ventures on mainland China. DuPont (NYSE:DD) is there, as is Arkema Inc. (OTC:ARKAF) and Japanese fluorochemicals/fluoropolymers firms. The Mongolian operations tend to be joint ventures with Russian firms, but the mines are not vertically integrated into chemical production within Mongolia. Mongolia historically has a love-hate relationship with China. It is more prone to establish relationships with Russia.
TCMR: Are there opportunities for fluorspar juniors in Asia?
RW: It's a fairly long value chain and there are opportunities for adding value all along that chain. Some of the highest value can be added in the raw material fluorine intermediate areas, where the raw material is used to manufacture a drug or a high-value pesticide.
TCMR: Do you have any names of any small firms in the supply chain?
RW: There are firms in both China and India that are participating in the chain. Most of the activity in the high-value fluorine chain has been occurring inside China. A lot of aggressive initial public offerings are happening there. Companies like Chemspec International Ltd. (private) are addressing high-value fluorochemical intermediates for pharmaceuticals and pesticides, while Dongyue Group Co. Ltd. (OTCPK:DNGYY) is pursuing refrigerants and fluoropolymers and Tianhe Chemicals Group [private] is pursuing specialty fluorochemicals and fluorochemical intermediates.
TCMR: Let's go back to the recent WTO ruling that China must relax its export restrictions. What is the likely impact of that?
RW: It is unclear how large China's fluorspar reserves are. This seems to be a sensitive topic for China. China withheld fluorspar from export because it wanted to develop a sustainable production of fluorspar and manufacture fluorochemicals, fluoropolymers and downstream medicinals derived from fluorine for high-value export. It controlled the quantities of exports of fluorspar through an export licensing system.
Then, the WTO found China in violation of its trading treaty and ruled that China could not withhold its fluorspar from the global market. The judgment immediately caused more fluorspar to be exported from China, although it is not clear if higher levels of fluorspar exports will be maintained in the future.
As a result, mines have been reopened in Mexico. There is new interest in the mines reopening in Canada, as we talked about with Canadian fluorspar. There is enthusiasm for looking at alternative sources of fluorine in the form of fluorosilicic acid from phosphate fertilizer production. If investors feel confident that industrial demand will cause prices to maintain at relatively high levels, then mining firms will invest capital to get more product to the market.
But, in a paradoxical situation, if China unleashes more fluorspar in the market as a commodity and not in the form of downstream products, then we'll see the commodity price go down. That will, of course, not generate confidence amongst investors. And if, instead of selling more fluorspar, China concentrates, instead, on selling fluorochemicals, fluororefrigerants and fluoropolymers, China will essentially be robbing established European, American or Japanese producers of fluoroproducts of their customers.
TCMR: What kind of criteria would you use for investing in fluorspar-related companies?
RW: For hedging my bets about geopolitical events, I would invest in Canada. I would strengthen ties to long-term contracts in Mexico and Mongolia. I would consider acquiring mines in hospitable parts of Africa. South Africa is uncertain right now with the mining labor turmoil, but there is also Namibia, which is an important producer. Kenya is a producer. However, those two countries lack industrial infrastructure and the potential for vertical integration into chemicals production, which is certainly not the case in Canada.
TCMR: This has been a very interesting conversation, Ray. Thanks.
RW: You are certainly welcome, Peter.
Ray Will, director, IHS Chemical, conducts business analysis and market research on inorganic and specialty chemicals. During his 23 years at SRI/SRI Consulting and IHS, he has contributed to the Chemical Economics Handbook and Specialty Chemicals Update Program and led consulting projects on fluoropolymers, fluorocarbons, hydrofluoric acid and fluorspar and many other topics. Prior to joining SRI, he worked in chemical sales where he both sold various blends of fluorocarbon CFC-113 to the electronics industry near Silicon Valley in California and recycled these blends. He has made numerous presentations at fluorspar and fluorine chemical-related conferences including the International Fluorspar Conference, Society of the Plastics Industry-Fluoropolymers Division and Industrial Minerals [an industry journal]. He holds a Bachelor of Science degree from the University of California at Berkeley and a Master of Business Administration from California State University at Hayward.
1) Peter Byrne of The Critical Metals Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
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3) Ray Will: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview.
I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.