Economy crashes, alumina burns

Published: Thursday, 22 January 2009

The perfect economic storm hits calcined alumina producers as they pay the price for a close relationship with steel. by Simon Moores, Senior Assistant Editor

Calcined alumina’s application in refractories pictured here lining a glass furnace. Courtesy Minerals Technology 
This economic storm is indiscriminate: from the world’s calcined alumina giants to its medium and small producers, the slump in demand has affected all.

The global economic crash has filtered into every facet of calcined alumina’s markets, but none more than the steel industry - the biggest customer through alumina’s application in refractories.

Across the board production cuts has ensued and a wave of uncertainty has swept through the industry.

Classification of what is deemed as “calcined alumina” has changed over the years, however for the purposes of this feature it will include: normal to low soda grades, high purity (>99.99% Al2O3) and ultra high purity calcined alumina (99.99% Al2O3); reactive calcined alumina, and polishing/abrasive grades.

Al derived, steel driven
Calcined alumina production is predominantly derived from the aluminium sector’s hunger for smelter grade alumina locked in the bauxite feedstock.

While the majority (~90%) of calcined alumina (Bayer process) continues its processing route onto aluminium metal, calcined alumina destined for non-metallurgical uses is siphoned from the processing route (see chart). Only between 8-10% of alumina production is for non-metallic applications, but it is quite ironic that through refractory applications it serves aluminium’s biggest competing sector, steel.

Thus it comes as no surprise that the leading calcined alumina producers are also the leading aluminium producers: Rio Tinto Alcan and Alcoa Inc.

Germany based Almatis come as an exception with a focus on speciality aluminas (calcined, fused, dispersing, and reactive). However, the group was created when former aluminium parent, Alcoa, divested it in 2004.

A handful of small to medium sized calcined alumina producers are also dispersed across North America, Europe and Asia.

Bauxite to alumina to market 

 Source: Eti Aluminyum AS

Rio Tinto Alcan cuts back
Since Rio Tinto Plc purchased the world’s biggest calcined alumina producer, Alcan, for a premium price of $38,000m. in 2007, times have not been the easiest with mounting debt for the mining group as a whole, and significant personal cutbacks.

Rio Tinto Alcan (RTA) has a 450,000 tpa calcined alumina capacity at the Gardanne, France plant.

However, on 20 January 2009, RTA announced a 15% (105,000 tpa) cutback at Gardanne “as a result of current European market conditions”. This will result in a 6% reduction of global annual capacity.

The group highlighted demand from water treatment and detergent markets to remain steady, as has traditionally been the case, and demand from chemical markets are “not expected to fall significantly”. Steel is a different story however.

Fred Huguet, marketing and development director at RTA Specialty Alumina Europe told IM: “Steel production has obviously fallen sharply and this is expected to significantly affect sales to refractory markets. The ceramics markets is expected to be more resilient than refractories, as it is more diverse and certain areas will remain strong whilst others, such as grinding media, will fall.

“Certain glass markets have been growing very strongly over the past few years and whilst this rate of growth is likely to fall, sales tonnages are expected to hold up well on previous year’s levels.”

Alcoa’s drastic action
Leading aluminium, alumina and calcined alumina producer, Alcoa Inc., took drastic action last month reducing its alumina production and slashing its workforce by 13,500 (13%), a calculated reaction to the strengthening global economic crisis.

Alcoa’s 420,000 tpa normal and medium soda calcined alumina production is driven by its aluminium business, and any decision on the aluminium metals business impacts the non-metallurgical sector.

Klaus Kleinfeld, president and chief executive officer of Alcoa said: “These are extraordinary times, requiring speed and decisiveness to address the current economic downturn, and flexibility and foresight to be prepared for future uncertainties in our markets,”

“We are taking a wide-ranging set of aggressive, but prudent, measures to ensure that Alcoa maintains its competitive lead in today’s challenging markets while also emerging even stronger when the economy recovers” he added.

Alcoa produces a range of non-metallic grades of alumina from four refineries in Australia, Brazil, USA and Spain. Its calcined alumina production is predominately from its Kwinana plant in Western Australia.

While the bulk of Alcoa’s global actions will impact outside of Australia, the managing director of Alcoa Australia, Alan Cransberg, promised “aggressive action” to maintain its business in these hard times.

There is also unrest among some of the Kwinana plant’s employees who are requesting pay increases and job security.

Almatis re-evaluates
The world’s largest independent calcined alumina producer, Germany based Almatis GmbH, is positioning itself to “react on short notice” following the economic downturn.

“The full extent of the economic crisis is still unknown” explained Andreas Pütz, communications officer at Almatis, who, like most, are viewing 2009 with caution.

Pütz told IM: “With a significant share of our product sales used for refractories in the steel industry, the recent production cuts by some of the large steel producers have begun to affect our business.”

It was a busy 2008 for Almatis which was purchased by private equity group, Dubai International Capital LLC (DIC) for $1,200m at the end of 2007. The group was sold by previous owner Rhone Capital LLC at the top of the market for four times what the group paid (see IM December ’07, p.10, Almatis finds new private equity owner).

At the time DIC explained to IM its plans for 20% production increases at Almatis by 2010 and to grow its presence in China, Russia, India, Brazil and the Middle East.

This was partially achieved in August 2008 with a $50m. investment into a full scale calcining facility in Huangdao near Qingdao, Shandong province, north-east China. The facility is designed to produce grades of calcined alumina and is integrated with Almatis’ established operations in Qingdao.

At the time, Almatis’ chief executive officer Martin Laudenbach acknowledged the risk of the investment at a time when “the global economic outlook [was] uncertain” – a month later the world’s economy began to plummet.

Almatis confirmed to IM that the company still intends to continue with its expansion in China, but is re-evaluating whether 2010 is too early.

Pütz said: “Our plan to invest in a full-scale calcined production facility in Huangdao (Qingdao) has not changed. Our aim is to have the capacity up and running by the time the market needs [it]. Right now we are evaluating whether mid-2010 is too early.”

The first phase of the project, a batch mill, is complete and production at the site began at the end of 2008.
In terms of market outlook, Almatis’ view has not altered much since the business sectors across the world have take the unprecedented severe downturn simultaneously. The areas viewed with most promise are still Asia, for Almatis, particualrly the “growth engines” of China and India.

“As a result our goal is to built an infrastructure in Asia that will allow us to supply most of the materials from within the region, offering our customers short lead times and efficient logistics”, explained Pütz, a sentiment backed by persisting with the Chinese calcined alumina investment.

Smaller producers suffer
Customers living on stocks
German producer, Martinswerk GmbH, is similarly suffering from the economic crash: demand is down, production is down from its 50,000 tpa calcined alumina capacity, and expectations for 2009 are conservative at best.

Klaus Kramer, global business manager for speciality oxides at Martinswerk told IM: “Sales of calcined alumina declined in the last three months. At the end of last year all customers reduced inventory levels due to the uncertainty of the market and bought less.”

Kramer described the markets as “very quiet” of late of which it supplies 50% of output to ceramics, 20% to the chemicals industry, and 15% a piece to refractories and polishing (abrasives). Its main customers are based in central Europe, North America with prospects in the Asia-Pacific region.

“We expect the ceramics, polishing, and chemical industry markets to pick up in the next couple of months as confidence returns” a hopeful Kramer explained, “the downturn in the refractories may last longer as it has a much stronger link to the steel industry”

The problem all calcined alumina producers are facing is that its end markets are all linked to the construction and auto industries both of which have been savaged in recent months.

Martinswerk is hoping that its new Martoxid MRS together with improvements on Ready-to-Press granules of calcined alumina will drum up additional business in 2009.

Nabaltec reduces output
Germany’s other leading calcined alumina producer, Nabaltec AG, revealed to IM it is also “reducing production” owing to the lower demand.

Nabaltec buys in aluminium hydroxide (alumina trihydate, ATH) – an intermediate product on the bauxite to alumina chain – primarily for the cable and wire flame retardant coating market. The calcining of aluminium hydroxide, producing calcined alumina, opens the group up to different opportunities.

Nabaltec sells 20% of its total 50,000 tpa capacity calcined alumina production from its Schwandorf, Germany plant to the ceramics industry, 8% to polishing/abrasives, and 7% to other smaller markets, however the bulk, 65%, is for the refractories sector – and the company is feeling the impact.

Gerhard Witzany, a member of Nabaltec’s management board told IM: “A slow down at the end of 2008, mainly refractory [sector was experienced]. We are reducing our production according to the lower demand, but a forecast for [future] demand is not possible at the moment, it depends on our customers.”

New Indonesian supply?
In Indonesia, PT Aneka Tambang (Antam) is forging ahead with its new 300,000 tpa chemical (non-metallurgical) grade alumina plant in Kalimantan despite the across the board demand slump. The plant will produce a range of non-metallurgical alumina grades including calcined alumina.

The state-owned mining group is hopeful that the markets for non-metallurgical alumina will provide a spread of opportunity in the refractories, ceramics, paint and abrasives sectors.

There is the belief that the niche applications of non-metallurgical alumina would most likely fetch higher prices than its metallurgical counterpart.

Eko Endriawan of Antam investor relations explained to IM that the chemical grade alumina plant is not yet operational as the company is still finalising the financing for the project.

Antam increased its stake in the joint-venture project - PT Indonesia Chemical Alumina (ICA) – at the beginning of December 2008 from 40% to 65% after buying the share of Singapore’s Straits Trading Amalgamation Resources.

Showa Denko KK – the Japan based 70,000 tpa calcined alumina producer from its Yokohama plant – still has a 20% stake in the project, while Marubeni Corp. holds the remaining 15%. Construction on the joint-venture project is expected this year.


What has happened to the markets?

The downturn in the steel sector has spearheaded the misfortunes of the refractories industry, calcined alumina’s biggest customer accounting for between 63-68% of demand.

Since confidence thus investment evaporated from the construction industry, steel has taken a turn for the worse. ArcelorMittal, JFE Steel, and Corus lead the way with significant production cuts by as much as 30% (see map).

Idling capacity usually results in a time of maintenance to reline the steel mills, however many producers are choosing not take this step – indeed mills could even go as operating costs mount.

Refractories’ other main markets of glass, cement, and non-ferrous metals have also suffered.

One of the world’s leading glass producers, Japan’s Asahi Glass Co. Ltd (AGC), explained: “The global economic environment has deteriorated further in the Q4 2008 and domestic and overseas demand for housing, automobile, home electronics plunged more than expected.

“The company expects further negative impact on the operating results for the AGC Group as a whole, including a significant drop in shipment of glass substrates for flat panel displays.”

Ceramics suffer
The all encompassing term “ceramics” may be misleading when referring to calcined aluminas use in the sector. The most well known ceramic sectors – sanitaryware, tableware, tile – use calcined alumina comparatively sparingly, it has a wider application in technical ceramics, grinding media, electronic ceramics, and support structures.

In this aspect, around 20-25% of total worldwide calcined alumina production is used in ceramics.

Grades with normal (0.45% Na2O) soda content will find use in tile, enamel, frits and glazes. Calcined alumina with medium (0.25% Na2O) and intermediate (0.15% Na2O) soda levels are more suited to sanitaryware, floor tile, and hotelware – ceramics requiring higher levels of resistance.

Low soda grades (0.10% Na2O) have a high electrical resistance and high thermal conductivity thus is suited to markets for technical ceramics, electric components, spark plugs (of which insulators contain 85-90% alumina), and engineering/structural ceramics.

Higher purity calcined alumina (>99.99% Al2O3) has a growing application in advanced, technical, engineering ceramics – and can been seen as somewhat of a staple mineral grade in these sub-sectors.

Properties including high strength, high impact resistance, and electrical conductivity are attractive, and with the high-end ceramics sectors growing this is seen as the brightest prospective market for calcined alumina

Good news, bad news
The good news for calcined alumina is that the high-tech ceramic sectors consume 60-70,000 tpa all grades alumina which is growing at 3-4% p.a. The bad news is that traditional ceramics have suffered over the last ten years as production shifted to Eastern Europe and China, impacting European calcined alumina demand in this market.

For example the UK ceramics industry has been decimated over the last 20 years, the latest victim of the falling industry being Staffordshire ceramics and glass manufacturers Waterford Wedgewood Plc falling into administration. The world economic crash being the tipping point for these calcined alumina consumers.

Keith Savage, director of Whitfield & Son Ltd, part of Richard Baker Harrison Ltd and industrial mineral suppliers to the Staffordshire traditional ceramics industry explained to IM how the demand for calcined alumina has shrunk over the last few decades.

Savage said: “There has been a very dramatic decline in the ceramics industry. Royal Doulton had 8-10 plants in the UK, they have now all gone, including Wedgewood [has fallen into administration.]”

“The ceramics workforce in Staffordshire 20 years ago was 50,000, now it’s around 7-8,000”, Savage added to the increasingly bleak picture.

Output of Italian production, along with Spain the leading European ceramics producing country, fell in 2008 by 6.4% in volume, with the decline set to continue in 2009.

Most recently across the board demand for ceramics is down as companies are not willing to invest into new projects which consume all ceramic products, whether it be new builds, aircraft, or electronic components.

Abrasives use is scattered between a number of applications in various industries from construction to car manufacturing to electronics. The sector has been described as “a barometer for the health of a nation’s manufacturing sector” (see IM January ’09, p.45, Minerals to the grindstone), and at present the sector is not very healthy.

Compounded by the economic downturn which has weighed heavily on the refractories sector, tapering long term demand for minerals such as calcined alumina in abrasives has prevailed in favour of synthetic grains offer greater durability and longevity.

A global problem
The situation calcined alumina producers find themselves in is extraordinary considering the healthy situation only a few months ago. But it is a problem with world business rather than a specific industry challenge, as the driving sectors of construction and auto manufacturing have ground to a near halt.

For calcined alumina’s fortunes to change, in business terms, the world needs to start turning again to spark the need for refractories, ceramics, and abrasives.

It is hoped some kind of upturn and confidence will return at the end of 1Q 2009, and this is entirely possible with the inauguration of new US President Barack Obama, and coming of the Chinese New Year – prior to which China rarely makes major decisions. Until then, calcined alumina producers, like the world, will have to wait and see.