In June 2009, the U.S. asked the World Trade Organization (WTO) to help settle a dispute over Chinese export restraints on industrially important raw materials. One of those was fluorspar, a mineral that is an essential raw material in the production of a wide variety of fluorine-containing products including refrigerants, coatings, foam-blowing agents, and pharmaceutical intermediates.
The grievance charged that China imposed export restrictions such as quotas, duties, and other administrative measures and costs. “The U.S. is very concerned that China appears to be restricting the exports of these materials for the benefit of their domestic industries, despite strong WTO rules designed to discipline export restraints,” complained Ron Kirk, the U.S. trade representative. China claims the restrictions are aimed at curbing the environmental impact of fluorspar mining.
“Friendly discussions” ended more than a year ago without resolving the dispute. Since then, the European Union, Mexico, Canada, and a host of other countries including Japan and South Korea have joined the complaint against China. In March, WTO set up a dispute settlement panel that is now deliberating. Observers say a decision could come anytime, but with appeals, a final resolution may take another two to three years.
No matter the outcome at WTO, China’s role as a fluorspar supplier will continue to shape the fluorochemical industry, just as it has over the past decade. In part because of China’s influence, some Western chemical makers have sold or shut down fluorochemical units. Other Western producers have struck alliances with Chinese fluorochemical companies. At the same time, Chinese firms have set out on their own to export fluorochemicals, breaking Western producers’ long hold on the market.
As China’s trade with the rest of the world blossomed in recent decades, consumer goods weren’t the only commodities to flood Western markets. Fluorspar exports rocketed. At the decade high in 1999, the country shipped out 1.2 million metric tons of fluorspar per year, according to United Nations trade data.
The glut caused global prices to plummet. Many Western fluorspar mines closed or significantly cut back. Western users became highly dependent on Chinese fluorspar sold at attractive prices.
Then around 2001, Chinese policy on fluorspar exports changed. Critics complain that the Chinese government restricted exports to protect a nascent domestic fluorochemical sector. Prices began to rise. In 2008, as the global recession began, China’s exports were down to 700,000 tons. That same year, China accounted for more than half of global fluorspar production of 6 million tons, according to the U.S. Geological Survey.
Western producers of hydrofluoric acid (HF), an important chemical intermediate made from fluorspar, began to scramble for scarce fluorspar supplies. At least one European HF producer shut down its plant because its fluorspar supplier had closed a nearby mine.
The economic slowdown further cut fluorspar production and depressed prices. More recently, prices have begun to recover as the global economy picks up, but China’s restrictions on exports remain.
The European Chemical Industry Council (CEFIC), a trade group, initiated the EU’s complaint to WTO. René van Sloten, executive director for industrial policy at CEFIC, says China has followed a pattern, with fluorspar and other minerals, of first dumping raw materials below their manufacturing cost and then driving foreign mines out of business.
Once China has established a monopoly on the raw materials, it places restrictions on exports—but not on sales to local consumers, van Sloten says. As China ratchets up export taxes and lowers export quotas, companies elsewhere in the world that depend on the raw materials are forced to manufacture their products in China, he notes.
In 1997, for instance, Arkema shuttered an HF plant at its Pierre-Bénite site in France, though it continues to manufacture refrigerants and other fluorochemicals there. It built an HF plant with Japanese partner Daikin, in Changshu, China, where it also makes refrigerants and fluoropolymers for the regional market. There, says an Arkema spokeswoman, the firm has had no difficulties obtaining the fluorspar it needs.
The French firm has no complaints about fluorspar prices and says it is not involved with the EU complaint to WTO. The spokeswoman explains simply that the shutdown of a nearby French fluorspar mine and the high cost of importing the mineral from South Africa led the firm to close the Pierre-Bénite HF plant.
Large producers with economies of scale can supply HF more cost effectively, the Arkema spokeswoman says. She identifies Lanxess as the supplier to the Pierre-Bénite site.
A spokeswoman for Lanxess, which is said to operate the second-largest HF plant in Europe, won’t disclose where it obtains fluorspar. But she does acknowledge that prices the firm pays for fluorspar “have been impacted by Chinese restrictions.” And for that reason, Lanxess is involved in the EU complaint. “We support free trade everywhere,” she says.
Because China is an attractive and fast-growing fluorochemical market in its own right, it can be difficult to determine if Western firms are setting up plants there to ensure themselves of fluorspar supplies or simply to capture business there.
In 2007, for example, the Belgian chemical maker Solvay started a Chinese joint venture to make 20,000 metric tons per year of HF. Its partner is Zhejiang Lantian Environmental Protection Hi-Tech, a subsidiary of Sinochem, one of China’s largest chemical makers. The HF plant, in Zhejiang, about 300 miles southwest of Shanghai, is complemented by a Solvay fluorinated polymers plant in Changshu.
Though Solvay declined to comment for this article, the company explained upon launching the Chinese project that it provides a foothold in a region where fluorochemicals are in growing demand. But it also noted that an important reason for the decision was China’s position as the largest global producer of fluorspar.
As a fluorochemical maker in Europe, the firm has taken steps in the past to insulate itself from fluctuating fluorspar prices and availability. In 1997, Solvay acquired a fluorspar mine in Namibia, in southern Africa. The mine gave the firm what it said were more than 20 years of reserves.
Like Solvay, other fluorochemical makers have been driven to vertical integration. Ray K. Will, a senior consultant at business research publisher SRI Consulting, points to Mexico City-based Mexichem, which bought the fluorochemical maker Ineos Fluor earlier this year.
Though Mexichem did not respond to C&EN inquiries, Will explains that Mexichem started as a mining firm operating what it claims is the world’s largest fluorspar mine, in San Luis Potosí, Mexico. It then bought an HF plant that it calls the second largest such facility in the world.
In a press release back in February, Ricardo Gutiérrez Muñoz, Mexichem’s chief executive officer, said the Ineos deal would further the company’s downstream integration. “Acquiring Ineos’ fluorochemical business,” he said, “reflects our ongoing strategy to add value to our main raw materials through vertical integration in more added-value products, expanding our product range and extending the global reach of our fluorine products business.” The completion of the deal in April created a fluorochemical producer with more than $500 million in annual sales.
Fluorochemical makers that are not back-integrated to fluorspar are hoping some Western mines will be developed or reopened, says Véronique Garny, director of fluorinated chemical sectors at CEFIC. Germany’s Fluorchemie, for instance, is working to expand its Phönix mine, which it opened in 2004. The company, which also produces HF, says the mine has 4 million metric tons of reserves.
Another mining firm, Tertiary Minerals, is developing two fluorspar mines in Scandinavia. It plans to start production soon at a mine in Storuman, Sweden, where it eventually hopes to produce 100,000 metric tons of fluorspar annually. It later plans to develop a mine in Lassedalen, Norway, that contains about 1.2 million metric tons of the mineral.
Even in the U.S., efforts are under way to restart mining. Don Hastie has been in the fluorspar business for 40 years. During that time, Hastie says, he has supplied customers through sales from a small mine he operates in Illinois, by selling off U.S. government fluorspar stockpiles, and by acting as a middleman in the sale of the mineral imported from China and Mexico.
Now his firm, Hastie Mining & Trucking, is working to develop a small mine near Salem, Ky.
“We are starting the first fluorspar mine in the region in 20 years,” Hastie says. “At one time about 50 different fluorspar mines operated in the area.” The busy mining region of southern Illinois and western Kentucky once produced about 90% of the fluorspar used in the U.S., he says. First cheaper Mexican fluorspar and then the glut from China shut the region down, he claims.
His plan is to have the new Hastie mine operating by December. But he cautions that satisfying a plethora of state and federal government regulations may delay the opening.
Once he does open the mine, Hastie expects both DuPont and Honeywell, the only U.S. HF producers, will become customers. Honeywell and DuPont, however, wouldn’t discuss the source of their fluorspar with C&EN. They also decline to comment on their involvement with the U.S. trade representative’s complaint to WTO. But one source close to the investigation tells C&EN that both firms are behind the initial complaint against China.
Honeywell claims to be the world’s largest producer of HF, at a plant in Geismar, La. DuPont operates a large facility in LaPorte, Texas. Both firms are also major producers of fluorochemicals. Neither is back-integrated to fluorspar.
In recent years, the two have teamed up to develop a new fluorochemical refrigerant, hydrofluoroolefin (HFO)-1234yf. Their patent position and speed to market could give them a leg up not only on other Western competitors, but also against Chinese producers, SRI’s Will suggests.
Initially, the new refrigerant was targeted to replace the auto industry’s workhorse coolant, hydrofluorocarbon (HFC)-134a, which the EU has banned in new model cars beginning in 2011 because of its global-warming potential (C&EN, July 26, page 23). HFO-1234yf is now the auto industry’s preferred replacement.
The two firms are also planning to develop HFO-1234yf for a host of other applications, including stationary refrigeration and appliance insulating foams. Others would like to enter the market too, but early indications are that DuPont and Honeywell intend to tightly control who is able to make the new refrigerant. An Arkema official indicated a few months ago that his firm had an ongoing dispute in a European court over rights to manufacture HFO-1234yf.
Honeywell and DuPont currently have pilot-scale facilities to make HFO-1234yf, and they have formed a joint venture to build a world-scale plant at a yet-to-be-determined site. But before the plant is built, they will have to have adequate quantities of the refrigerant to supply European automakers next year.
They will bolster their pilot plant output with an intermediate-scale facility now under construction in China at DuPont affiliate Changshu 3F Zhonghao New Chemical Materials. DuPont was not available to say why it chose to produce HFO-1234yf in China or whether fluorspar accessibility played a role in its decision.
What is clear, though, is that refrigerant exports to the West will not just be coming via DuPont and its affiliate. Solvay’s partner, Zhejiang Lantian, describes itself as a leading fluorochemical producer, exporting more than 60% of its output to North and South America, Europe, and Asia.
China America Holdings, a small distributor, says its exports of refrigerants from China, including to the U.S. and Europe, more than doubled in the first nine months of 2010 to $2.7 million. Whether these exports will grow to be significant enough to unbalance Western fluorochemical makers remains to be seen.
In June 2009, Kirk, the U.S. trade representative, noted that China’s restrictions on the export of fluorspar and other minerals appear to be part of a “troubling industrial policy,” intended to give a competitive advantage to Chinese industrial companies. “We must fight against this kind of domestic favoritism,” he said.