Market
GOLD
Gold Market
As gold is indestructible, all the gold produced in history is still existing in some form. The supply of gold on the market comes from mining production, recycling, selling, and gold lending from the official reserves. All together there is an amount of about 150 000 tonnes of gold existing in the world from which the major part has been extracted since the middle of the 20th century. The major part of the annual gold production is used for jewellery industry. In the past few years he consumption in this area has outran the mining production.
The world’s gold companies produce approximately 2 500 tonnes gold every year. The fact is, however, that now it takes more time to discover big gold mines as at the same time the ones existing are being mined even faster. In the past few years there have been many new gold deposits discovered in Fennoscandinavia.
The gold production in world’s mines is lower than the annual consumption. In addition to recycling, the continuous deficit has been covered with clearance sales e.g. from different countries’ gold reserves.
Table. World’s gold production and consumption (tonnes). Period for 2000 - 2007. Source: Virtual Metals Research & Consulting, Raw Materials Group, Mitsui, Haliburton Mineral services, World Gold Council.
| 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 |
Supply |
| Mine production | 2 507 | 2 514 | 2 491 | 2 513 | 2 358 | 2 549 | 2 484 | 2 476 |
| Recycled Gold | 660 | 620 | 860 | 900 | 1 100 | 898 | 1 129 | 967 |
| Gold Hedges | N/A | 17 | 186 | 178 | 68 | –92 | –410 | –447 |
| Central Bank Sales | 579 | 519 | 448 | 571 | 464 | 663 | 370 | 501 |
|
| Total Supply | 3 746 | 3 670 | 3 985 | 4 163 | 3 990 | 4 018 | 3 572 | 3 497 |
Demand |
| Jewellery | 3 090 | 3 000 | 2 796 | 2 651 | 2 686 | 2 709 | 2 284 | 2 401 |
| Gold Coins | 59 | 55 | 69 | 85 | 91 | 92 | 128 | 137 |
| Electronics, Industry and Dentistry | 257 | 273 | 291 | 310 | 332 | 432 | 459 | 461 |
| Other Usage | 221 | 241 | 264 | 292 | 325 | 235 | 235 | 235 |
| ETF | 0 | 0 | 0 | 33 | 125 | 208 | 260 | 253 |
| Central Banks | 117 | 89 | 29 | 35 | 61 | 58 | 40 | 32 |
| Gold Hedges | N/A | 125 | 625 | 541 | 518 |
|
| Total Demand | 3 744 | 3 782 | 4 074 | 3 947 | 4 138 | 3 734 | 3 406 | 3 519 |
Residual | 2 | –112 | –89 | 216 | –148 | –228 | –166 | –22 |
There are more than 900 gold mines operating around the world at the moment. Throughout the majority of the 20th century the world’s gold production was dominated by South Africa which in the 1970s produced 1 000 t gold per year. At that time it was about 70 per cent of the world production. Later South Africa’s share has gradually declined and is now less than 300 tonnes per year. Although countries like China and Indonesia have increased their production significantly, the world production of gold has not as a whole become larger. On the contrary, it has decreased slightly in recent years.
The gold contents in different ores vary strongly. Generally it is said that the gold ore in an underground mine must have concentrations higher than 2-4 grammes gold/tonne to be profitable and meet the investors’ interest. The gold content in open pits is generally lower than in the underground mines Lots of gold is produced in open pits with gold contents of 1-2 g/tonne.
The production costs in USD vary a lot depending on if the mining occurs in an underground mine or open pit, type and properties of different ore bodies as well as gold contents. Other factors affecting production costs in terms of USD / oz are the gold content of the ore and various characteristics of the ore which affect the mining and ore treatment in the plant. The average reported production costs, the so called cash costs, for commercial western mining company for the third quarter of 2007 is about 316 USD/oz including costs for depreciations and the environment costs with the closure (World Gold Council and GFMS).
Figure. Gold price development in USD and EUR. Source: World Gold Council.
Gold Trade
The global gold trade occurs mainly directly between different market participants. Trade occurs through spot transactions and different forms of derivatives. Markets are open day and night with the main centres for trade in London, New York and Zürich. The main actors are central banks and mining companies. In Dubai and other Far East cities there occurs trade in smaller scale, too. The trade can occur by telephone as well as by electronic trading system.
It is complicated to exactly decide gold’s annual sales volume and price. Three times a year the branch organisation World Gold Council estimates the underlying annual sales volume meaning that the value of all gold produced in one year is three times higher than the value of all the gold existing.
ILMENITE
Market and Price Trend for Ilmenite
The demand for the industrial mineral, ilmenite, is completely dependent on the mineral’s ability to be used in the production of titanium oxide as there still is not any economic substitute for it. It cannot even be recycled. In the past few years the consumption of the titanium oxide pigment has risen to average 2,8 per cent a year. This number is comparable to the world’s GDP growth. At the moment it is estimated that titanium mineral products seem to totally fulfil the demand if none of the new projects will delay during this decade.
The demand for ilmenite follows the demand for titanium dioxide pigment. The Chinese pigment production has grown 22 per cent during the last five years. This increase of the demand for TiO2 raw material is expected to cause an increased demand for ilmenite concentrates. On the market for titanium minerals, trade occurs between limited amount of operators. Long delivering contracts are typical, and cooperation relationships, which are based on strategic and qualitative benefits among the products for the customer’s process and demand, have developed.
There are no existing systems for the pricing of ilmenite concentrate in the raw material stock exchange, and in many occasions the price for ilmenite has been bounded to the price of the pigment with contract terms. The pricing depends on the actual ilmenite’s quality in relation to impurities and TiO2 concentration. The pigment producers strive for the lowest possible price in relation to TiO2 concentration. The cost of pigment production is related to the selected production process and possible included side products e.g. iron sulphate and this affects the pricing capacity of ilmenite. Impurities like lead, uranium, chromium, and vanadium have a strong negative effect on the price. Ilmenite should also rather be mixable with the other producers’ ilmenite.
The price for ilmenite in Europe has been rising as the transportation costs from Australia, South Africa and India have increased. Cargo costs from Australia are estimated to be around the half of the ilmenite concentrate’s costs per tonne. That is why the proximity of the customer is an important factor in the pricing capacity.
The market estimates that the growth for titanium oxide in developing countries is going to exceed their GDP growth. At the moment big potential markets like China and India have much lower per capita consumption than many developing countries. The demand for titanium oxide pigment has increased since 2005. Some assessors evaluate, however, that the growth is going to be reduced during 2008-2009 by about 3-5 percent.
The TiO2 market is approximately 100 years old, but there still are not any serious competitors for the TiO2 pigment and its high-tech use. The commercial conditions are thus favourable. In the past few years occurred a significant consolidating both on mining side and among pigment producers. The market has specialised and consists mainly of pure TiO2 companies. The annual increase of titanium oxide is estimated to be around 110 000 tonnes (Corresponds to 250 000 tonnes of 44% ilmenite concentrate).
Figure. Demand for TiO2 pigment. Source: information from a number of sources compiled by Kalvinit.
Figure. Ilmenite’s price. Source: Kalvinit’s estimations. Prediction 2006-2008.
The world’s biggest manufacturers of titanium pigment are Dupont, Cristal Global, Tronoxl, Huntsman Tioxide, Kronos, ISK, Sachtleben. Kalvinit’s potential customers are mainly located in Europe and consist of the European pigment manufacturers which use sulphate process. These are Sachtleben (Finland, Germany), Huntsman Tioxide (England), Tinfos (Norway), Percheza (Czech) and Zaklady Chemiczne Police (Poland).
Ilmenite production is distributed in the following way: Australia 46%, Norway 13%, Ukraine 12%, USA 8%, India 8%, China 4%, Others 9%.
Figure. Global ilmenite deposits.
The potential demand for ilmenite concentrate in Europe totals 1 000 000-1 250 000 tonnes of which Kalvinit’s planned production could cover 250 000 tonnes. Also Kronos International from Norway uses ilmenite and owns a mine in Norway which covers its own demand. Kronos Interantional sells also around 550 000 tonnes ilmenite per year to external customers. The remaining part is imported from Far East, Australia and Africa.
