By Rhiannon Hoyle
SYDNEY--A slowdown in China's frenzied growth may be denting
markets for commodities from coal to copper, but one lesser-known
raw material is bucking the trend--zircon.
The mineral sand, used to make ceramics such as tiles and wash
basins, is being snapped up in substantially larger amounts after
prices tumbled last year as fears for the global economy
intensified. And it's China, the second-biggest economy, that's
spearheading the buying spree, according to the No. 1 zircon
producer Iluka Resources Ltd. (ILU.AU).
In a quarterly production report published Wednesday, the
Australian company said sales of the material more than doubled in
the first half of 2013 from a year earlier, with China consuming
the bulk of its output. Iluka is the largest producer of the
mineral, accounting for more than a third of global production.
Rising demand for zircon is in stark contrast to creaking sales
of most other industrial commodities as China's economy has cooled.
In April, for instance, copper imports slumped to the lowest level
in almost two years, contributing to a first-half drop of 20% from
a year earlier.
Following a sharp slowdown in 2012, China's growth decelerated
to 7.5% in the second quarter, down from 7.7% in the first, and
some economists now expect this year's growth to be the slowest in
more than two decades.
Zircon's better performance, however, is explained by a
different set of statistics--linked to China's housing market,
which is continuing to show buoyancy.
Reports this week showed the country's real-estate sector
strengthening in the first six months of 2013 even as the
government took measures to cool the housing market, with
residential and commercial property sales, as well as construction
starts, all higher.
Iluka and other zircon producers have benefited, since the
purchase of new homes tends to drive demand for ceramics, which are
widely used in people's kitchens and bathrooms.
"Zircon demand has improved significantly," said the Perth-based
company, which mines the raw material both in Australia and the
U.S. "Demand in China represents the major component of Iluka's
year-to-date zircon sales."
More than half of the zircon bought worldwide is consumed by the
ceramics industry, which deploys the mineral to make ceramics
opaque. Technology companies also use it as the source material for
chemicals that go into producing fuel cells and electronic
devices.
In Wednesday's report, Iluka said China's growing appetite for
the mineral sand means the company will now produce close to
280,000 metric tons of zircon this year--up from an earlier
forecast of 220,000 tons. In its quarterly production statement
earlier this week, Rio Tinto PLC (RIO) also reported an improvement
in the zircon market, saying this had prompted it to restart idled
operations at a deposit in South Africa.
Iluka, Rio and U.S.-listed Tronox Ltd. (TROX) together account
for about 70% of global zircon output. Each trimmed production
after swelling stockpiles weighed on prices last year.
Iluka said rising real-estate loans and growing construction
activity in China bode well for the future. The Asian nation
consumes some 40% of world zircon supply every year, while
producing only about 7% itself, according RBC Capital Markets
research. That means China will continue for some time to look
offshore for most of its supplies.
Iluka's managing director, David Robb, said in a recent
interview that Chinese homeowners tended to prefer tiles on their
floors over alternatives such as carpets, laminates and wooden
floorboards. Close to three-quarters of all flooring materials sold
in the country are tiles, compared with less than 10% in the U.S,
he added.
The strengthening demand for zircon has helped Iluka's shares
outperform other similar-sized mining companies on Australia's
stock exchange. The stock is up more than 20% this year, compared
with a 13% drop in a subindex of material stocks on the benchmark
S&P/ASX 200. BHP Billiton Ltd. (BHP), the world's biggest
mining company with diverse operations in industrial metals and
energy, is down 8%.
Still, some analysts are wary of the outlook for zircon, which
like other commodities is vulnerable to shifts in business and
consumer confidence. And as Matthew Hope, a Sydney-based resources
analyst at Credit Suisse, points out, China's recent efforts to
cool the housing market--if they work--may translate into
substantially weaker demand for consumer products like tiles in the
coming months.
"Demand could weaken, or it could be flat, but I would certainly
be cautious about the second half," Mr. Hope said in an interview
Wednesday.
For now, there are few signs of any impending slowdown. The
manager of a major Chinese tile manufacturer in Qinghuangdao, in
Hebei province, said sales in March and April were especially
strong.
"It's definitely better this year," said the manager, who
declined to be named because she isn't authorized to speak to
media, adding that China's property market growth was the driving
force behind the pick-up.
--Yue Li in Shanghai contributed to this article.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
