ILUKA chief executive David Robb says there is nothing to fear from China's retreat from double-digit economic growth rates to the more sedate predictions of about 7 per cent.
 
Being the mathematician that he is, Robb has faith in the numbers. And the numbers tell him that even at the lower growth rate, China's demand for Australia's commodities is set to continue to grow strongly.
 
"If you start with 100 units of demand and grow it at 10 per cent cumulatively for three years, then in year four you only need 7 per cent growth on that expanded demand base to create the same incremental 10 units of demand that the 10 per cent growth in year one gave you.
 
"So frankly, growth rates in China do not bother me, as long as there is no collapse," Robb told The Australian. He was speaking following the release of the mineral sands group's interim result, which was down a hefty 87 per cent to $34.3 million.
 
The slump was due mainly to lower commodity prices. But the interim result also pointed to better times ahead for the mineral sands industry, which relies on demand for the pigment found in paint and plastics, the sheen on ceramic tiles and sanitary wear, flux in welding rods, and high-end applications of titanium metal.
 
China's consumption of mineral sands has grown strongly in the last 10 years, more than compensating for the demand hit that came with the longstanding economic woes of markets in Europe and the US. And it remains the great hope to underpin stronger future demand.
 
Robb is confident it will. "The forces of urbanisation will continue within China, almost no matter what the headline economic growth rate," he says.
 
"We are at a tipping point where a newly emerging middle class has disposable income for the first time and can buy an apartment (tiles and sanitary wear) and then fill it with a (painted) fridge, a washing machine, an air conditioner and so on.
 
"So even if the headline growth rate were to falter, I do not see a huge impact on demand for our products.
 
"China's economy is shifting from being infrastructure-led and big fixed asset investment-led to consumer-led growth. That is good news for us, very definitely."
 
Still, mineral sands prices have retreated from the heady heights seen in 2011, taking Iluka's share price down from a peak of $19.25 in July 2011 to $11 in recent days. That represents a value loss of $3.4 billion and reflects the sharp fall in mineral sands demand when economic concerns about Europe and the US were at their height, with China's slowdown to have a later impact.
 
Signs have emerged that demand is on its way back, and stronger demand is a precursor to stronger prices, once high inventory levels are worked off.
 
Zircon (tiles and ceramics) was on the mend in the first six months of this year. The recovery in the titanium dioxide products of rutile and ilmenite is more tentative, but Iluka for one is tipping that it has or is about to bottom.
 
The cautious optimism explains why Iluka surprised some analysts by declaring an interim dividend of 5c a share, even if a catch-up tax payment in the period meant it had a negative cashflow.
 
"We've always said that we try to think about the business and distributions to shareholders in longer-term horizons than any single accounting period," Robb says. "And because of the expectation of stronger free cashflow in the second half, we felt it was appropriate to pay a dividend, albeit a small one," Robb says.
 
A common thesis in the market is that uncertainty surrounds Iluka because China could destabilise the pigment market as it has done in aluminium and nickel pig iron by growing capacity, running it flat out, and then effectively exporting price deflation.
 
"We understand the thesis, but we think it is hugely simplistic," Robb says.
 
"There is upside for us in extra China pigment capacity."
 
But he adds the rider that the growth in Chinese production has to be in chloride pigment capacity as distinct from sulphate pigment, which uses more rudimentary technology and comes with lower capital costs.
 
China's burgeoning pigment capacity －－ it accounts for one-third of global capacity －－ until now has been all sulphate. But Beijing has put the industry on notice that the future is the chloride route because it is cleaner, more efficient and will result in import substitution because it yields the high-quality paints needed by the booming automotive sector.
 
Iluka produces the high-grade titanium feedstock (rutile/synthetic rutile) needed in the chloride route. So while not currently a supplier to China (it does supply zircon there), Beijing's direction that the future is in the chloride route is "great news" for Robb.
 
"Our agenda is to work with these fledgling Chinese chloride pigment producers to help them be successful, or at the very least understand that they really need good stuff in their feedstock to make it work, and we are the ones with the really good stuff."