The research conclusion

      The global zircon sand industry has experienced several years of downturn, finally ushered in the bull market sunny days. Since July last year, zircon sand prices at home and abroad since the low up to two times! In our view, this bull market is likely to continue for at least a few more years. We forecast that the average spot price of domestic zircon sand in 2011-13 is 17000 yuan/ton, 21000 yuan/ton and 23000 yuan/ton. There are four main reasons:

      First, zircon sand supply and demand distribution structure is abnormal imbalance, contributing to the continuation of the bull market. On the one hand, the supply is highly concentrated, with Australia (40%) and South Africa (30%) accounting for 70%. From the perspective of companies, ILUKA, the largest zirconium sand supplier, accounts for 35%, and the top five companies account for more than 70%.

      China is a scarce zircon sand resource, with production and reserves accounting for less than 5%, but the demand is mainly concentrated in China (more than 40%), and distributed in many small and medium-sized enterprises. We believe that the abnormal imbalance of supply and demand distribution structure, once broken, is difficult to repair in a short time.

      Second, zircon sand in this round of bull market up, has experienced a sustained downturn for many years, the industry is struggling, this and 2003 to the global resource products with a vigorous bull market is extremely asymmetrical, the current zircon sand price is a strong rise in the past years of new industry investment downturn and rare new projects. Take ILUKA, the world's largest zirconium sand manufacturer, for example, its gross profit margin has not exceeded 25% in the past five years, and it was even -8% in 2009 (the equity of CRL zirconium sand was sold in that year to maintain the normal capital expenditure of the company), lower than domestic zirconium products processors similar to Dongfang zirconium industry. It is even lower than the gross margin of BHP, a big general miner, which has been above 35% since 2007.

      Third, costs continue to rise, driving up prices. The world's leading producers of zirconium sand are Australia and South Africa, and the strengthening of their currencies in recent years has been the biggest reason for the cost increase. In addition, the rise of energy, electricity, labor, auxiliary materials and other prices, also promoted the rise in costs. In the case of high supply concentration in the industry and tight supply and demand in the future, large manufacturers will increase prices in order to stabilize their gross margins.

      Fourth, the current global zircon sand manufacturers and traders inventory is historically low. ILUKA, for example, produced 412,900 tons of zirconium sand in 2010, sold 478,700 tons, and sold more than 60,000 tons of inventory, which has been built up since the financial crisis. We also know that domestic traders' inventories are also low. With future supply and demand patterns still tight, the current low inventories of producers and traders are conducive to the healthy operation and continuation of the bull market.

      Look for companies with zircon sand resources. At present, only Oriental zirconium industry (unrated) is listed in China with zirconium sand. In 2009, the company contacted AZC, an Australian listed company, in the most depressed zircon sand industry, and finally signed an intention contract in May 2010 -- acquiring 65% of AZC's equity with a total of 40 million Australian dollars. That is, the final control of the equity zircon sand reserves of about 2.2 million tons, accounting for 80% of the current proven domestic zircon sand reserves, and Mandarie zircon mine is expected to resume production in the second half of this year, the annual output of 25,000-35,000 tons, accounting for more than 50% of domestic produced zircon sand.

     Risk factors :

     (1) demand growth is lower than expected. Soaring prices and China's tightening of the property market could lead to slower-than-expected consumption growth in the ceramics sector, which is dominated by zirconium sand.

     (2) The acquisition of AZC's WIM150 assets by Dongfang Zirconium has not been completed and there are still uncertainties