The war in Ukraine, a major rutile producer, is helping drive long-term price optimism and record drilling, outweighing any negative impact from global recession fears.

Rutile, a titanium mineral commonly processed as a white pigment in paint and paper, was priced high even before Russia invaded Ukraine in February. Significantly lower output from Ukrainian producers, which collectively comprise the largest source of rutile for the global welding market, is having ripple effects across the market for titanium, according to Iluka Resources Ltd., the world's largest producer of zircon and rutile and a major producer of synthetic rutile.

Rutile drilling has reached its highest level since at least 2016, with 548 drillholes as of July 26 — already more than 2021's total of 516, according to S&P Global Market Intelligence data.

"[Sentiments] remain robust despite the titanium market's broader concerns about western world recession," Todd Warren, partner and head of research at Tribeca Investment Partners Pty. Ltd., told S&P Global Commodity Insights. The high level of drilling reflects the positive views of the rutile market from those doing the work, Warren said, citing Market Intelligence data and referring to rutile miners Iluka, Base Resources Ltd. and Kenmare Resources PLC.

"And while Iluka's share price has come under a lot of pressure because its share price is seen as another proxy for China's property market, they're clearly not having any trouble at all moving their product, which is more indicative of the reality on the ground rather than our speculative fears," Warren added.

Tightening rutile supply

French multinational Eramet SA called rutile "the rarest titanium raw material." The mineral contains between 92% and 96% titanium dioxide, making it "ideal for the manufacturing of pigments, as well as for niche markets" such as titanium metal, electric arc welding, medical and automotive. Titanium is also on the critical minerals lists of Australia and the U.S., among others.

Iluka's share price suffered along with industrial metals in the second half of 2021 when property giant China Evergrande Group's debt crisis was revealed, but rutile is still in a "sweet spot," Peter O'Connor, senior mining analyst at financial advisory Shaw and Partners, said in an interview.

"Capacity utilization rates are high across pigment producers both in the U.S. and globally. The outlook for feedstock to that market — particularly natural rutile — is tight and will be tight potentially for an extended period, maybe for the very long term," O'Connor said.

"Rutile was short in supply pre-COVID. Overlay on that the COVID stimulus measures in 2020, and what that did to investment globally and therefore consumption of materials including pigments," O'Connor added. "Then you come into February 2022 [when Russia invaded Ukraine] and the market tightness just gets dialed up again."

O'Connor said this is reflected in Iluka's quarterly review that said the rutile price rose 17% to $1,506 per tonne in the first half of 2022 compared with the second half of 2021, amid "continued interest from multiple customers seeking access to the minimal spot volumes available beyond committed tonnages in the second half."

The company expects prices to increase further in the second half of 2022. "The war in Ukraine continues to restrict supply of ilmenite and rutile, increasing demand for feedstocks from western producers such as Iluka," the miner said July 20.

Timing is key

"There is not necessarily a shortage of rutile, but a shortage of economic deposits, and a shortage of deposits in locations that you can bring to market in a reasonable time frame," Warren said.

Sovereign Metals Ltd.'s Kasiya project in Malawi, the world's largest rutile deposit, will take years to achieve commercial production, though the company expects to deliver a pre-feasibility study next year. The project has received some investor attention of late due partly to the lack of major new projects scheduled to come online.

"It's the first decent-sized new deposit that's been discovered for quite some time," Sierra Rutile Ltd. finance director Martin Alciaturi said in an email interview.

Ukrainian plants reduced the export of titanium-containing ores and concentrate by 46.2% compared to the same period in 2021, Ukrainian steel sector media and analytics portal GMK Center reported July 16.

Aside from Ukraine, a "material amount of existing rutile production comes from countries that are in some way challenged," Alciaturi said. Other producing countries include South Africa, Senegal, Kenya, Madagascar and Mozambique.

"The Ukraine-Russia war means there is a Ukraine mineral sands business that's struggling, and the issues in South Africa with Richards Bay does have an impact on the rutile market," Sierra Rutile CEO Theuns de Bruyn said in an email interview. The Richards Bay property is a Rio Tinto Group asset where a force majeure on customer contracts ended in the first quarter.

It this environment, Sierra Rutile was demerged and listed on the Australian Securities Exchange on July 27, having addressed the poor operational and financial performance and disruptions from COVID-19 that dogged its Sierra Leone mineral sands operations in 2020 and the first half of 2021.

Rutile accounts for about 90% of Sierra Rutile's revenue in Sierra Leone, where the company's namesake project represents the sixth-largest rutile deposit, according to Market Intelligence data.

"The Ukraine conflict doesn't affect our investment case but it does affect the market, and I think it will affect the long-term pricing of rutile in a positive way," de Bruyn said.

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