Although January 1 prices were still higher than December 2011 prices, virtually all major iodine suppliers provided set prices for the quarter. This presents the first time since April of 2011 that prices have remained the same for more than 30 days.

What has happened to stabilize prices and supply? The single biggest factor is the new Algorta mining operation in Chile. This new mine was originally scheduled to come on line in June, 2011. Because the other mining companies in Chile had been following the new operation, they had reduced their mining activities so that the market would not be swamped with an oversupply of iodine. What they could not know, of course, was that the new mine in fact was being delayed by many external factors that would ultimately prevent any new iodine shipments until late December 2011. When the Japanese earthquake occurred on March 11, and their supply of iodine (totaling around 35% of the market) temporarily disappeared, the situation for iodine users became very dire. As June came and went, and no material from the Algorta operation entered the market, the supply situation continued to deteriorate, and prices continued to increase.

Finally, in the last week of December 2011,the Algorta mine begin shipping iodine, but even these have been of less volume than anticipated.  Nonetheless the material is having a significant impact on the market.

The second occurrence that has stabilized the iodine market is that many uses of iodine have been reduced, eliminated or revised, so that demand has decreased. Particularly, liquid iodine uses where substitutes exist have been a big factor, but an equally big factor has been the revamping of how iodine is used so that less is wasted, or more is recovered, where possible.

The third change, but perhaps the one with the least impact, is  Japan’s return to a production rate fairly equal to the pre-earthquake level.  Unfortunately, in Japan iodine production is on a slow and steady decline, due to the location of the iodine reserves in the ocean off the coastline.   At some point, the removal of brine water containing iodine must halt, because it creates an easily measurable drop in the land mass of the Japanese islands.

For the remainder of 2012, it would appear that supply will continue to rise up to closer to the demand level, although it will probably be well into 2013 before a possible oversupply might occur.

Price:  The price of iodine in February of this year averaged $29.87 per kilogram.  The new December price averages $67.65 per kilogram, an increase of slightly more than 126% percent.  Although $67.65 represents a huge increase in price, IodiTech suspects that we are slightly behind our competitors, who are paying around $69.00 per kilogram.

Demand:  Higher prices have not had a great impact on product demand.  IodiTech continues to have more order requests than we have material available, a steady trend since right after the earthquake.  The intensity of demand for product has greatly lessened, but not the overall demand.  Even markets with direct substitutes, such as skin disinfectants, seem to be using at the same demand rate. This is not a positive sign for future prices.

Supply:  It appears that the area of Japan where the earthquake was centered produced about half of Japan’s iodine.  Primary among these was Kanto Natural Gas.  Those iodine production areas do not appear to be returning to the market.  Other areas of Japan seem to be supplying about the same amount of iodine to the market.  South American mines are operating at full capacity, and although one new and very large mine came on line in October, new material has not really made its way into user’s factories.  Part of this new mine’s production will be used to replace a mine that is closing.  Overall, the supply of iodine to the user base appears to be at about 85% of the demand.  This is not a positive sign for future prices either.

Outlook:  Economics would say that iodine is an elastic demand material.  Higher prices should reduce demand.  However since iodine is primarily used as a raw material, and not consumed strictly in and of itself, this is not necessarily how the market is being affected.  Oil prices directly drive gasoline prices, and gasoline is consumed throughout the world, and especially in the United States, as a direct budget item.  High oil prices = high gasoline prices = less driving, and less demand through conservation.  Potassium iodide, IodiTech’s largest product line, is typically used at a less than 1% inclusion rate in products.  In many of these products, the potassium iodide contained in the product may represent less than 0.01% of the product’s overall price.  In these cases, iodine prices could triple, quadruple, or more, without significantly impacting the product it is used in.

Iodine derivatives share a further unique property – they are occasionally inelastic to price in that they simply have no substitute.  X-ray contrast media testing is an excellent example of this.  The test has to contain iodine, otherwise it isn’t an x-ray contrast media test.  Dietary use for food production animals is the same.  Dairy and beef cows, poultry production and swine production all require enormous amounts of iodine products, with no substitute.  Again, prices can become as high as the suppliers want, and the animal still has to have its daily supply of iodine.

IodiTech is preparing for increased prices in the coming months.  Until supply and demand become more balanced, this is the only prudent way to approach the situation.  We do believe that eventually some uses with substitutes will finally drop out of favor and that at least some new mining capacity will enter the market.  But when those two will reduce the monthly shortfalls remains unknown.

Beginning in November of 2010, some supply issues were being evidenced.  One large Chilean mine lost a critical water source and another mine began working in a ground formation with a lower than anticipated iodine content.

When the Japanese earthquake occurred on March 11 of this year, the overall iodine market was likely short nearly ten percent of supply versus demand.  The area of Japan that was affected by the earthquake was also a high iodine production area.  Although it is not known for certain, it would seem as though Japan’s supply of 33% of the world’s iodine was cut at least in half.  Regardless of the volume that is still being supplied from other areas of Japan, the total is significantly less than in 2010.

So, with the decreased Chilean volume from mining issues, and the Japanese supply drop due to earthquake damage, the global market may have as little as 75% of the iodine as needed.  Thus far this year, that shortage has largely been negated by decreases in inventory volumes at all levels:  mines, material in transit, material in warehouse, material being processed, warehouse stock of finished goods, and customer inventory levels of finished goods.  Unfortunately this approach is finite and it is clear that with the robust economy in some parts of the world, and some new applications of iodine, that simply managing inventory is not going to be adequate.

Beginning in late 2011, one large new Chilean mine will begin shipping iodine.  In addition, high prices for iodine have allowed some recovery operations to be profitable (these consist primarily of the recovery of iodine from waste streams generated during the production of pharmaceuticals and also from industrial process operations).  These volumes will probably not have immediate impacts on availability, but rather will stabilize the market place.  Looking past mid-2012, it would appear that global economics will probably reduce the demand for iodine in a number of market segments, but especially in consumer applications such as automotive and electronics.