Chinese recovery on green light

By Simon Moores
Published: Saturday, 22 August 2009

Export trade issues appear to have little impact on positive signs for China’s economic recovery and good market prospects for certain minerals. These and other topics are up for discussion at IM’s 8th Chinese Industrial Minerals Conference in Qingdao, 7-9 September

The last time IM held a conference in Qingdao was in 2001, the 4th Chinese IM Conference. Talk of the town at that event was China’s accession to the World Trade Organisation, and how it was widely anticipated to be the death knell of China’s export license system.

Eight years on, we are back in Qingdao with the 8th Chinese IM Conference, and the world market is still grappling with China’s export policy, although with a significant difference. The export licence system has remained in place, albeit with annual tinkering, but the squeeze is not only on prices, but crucially, on availability – China is shutting the door on mineral exports. Bauxite, magnesite, fluorspar, and rare earths are key examples.

The western market is not letting this happen without a murmur, and at least three legal cases have been brought against Chinese mineral exports, including via the WTO (see “Mineral trade: by fair means or foul?” IM August ’09, p.21).

On the sunnier side, China remains a healthy prospect for mineral demand within its domestic markets. In particular, the filler mineral markets of paint, paper, and plastics, but also refractories (as steel output is already recovering), ceramics, and high tech industries. Indeed, what seemed quite unlikely some years ago is now a very real market opportunity – selling minerals into China.

Somewhat assisting this sea change of mineral trade, which at this early stage relates to a limited range of specific mineral grades, has been China’s exhaustion of suitably developed mineral reserves in certain quarters, eg. high grade talc, paper grade kaolin, andalusite (China has always been short on zircon and chromite).

With China seemingly already on course to meet its 8% growth target for 2009, the signs are that this country will emerge from the recession first and with it bring interesting opportunities for the industrial minerals industry.

Here we preview some of the presentation topics lined up for IM’s 8th Chinese IM Conference in Qingdao.

Market protectionism

Of the leading topics of discussion, China’s dispute with US and European trade officials via the WTO about its export policy will surely be up there. Dr Dan Horovitz, partner at Holman Fenwick Willan LLP, Brussels, is to speak on “Dealing with market protectionism in times of crisis and recovery”

Despite the recession, Horovitz admits that “Some governments heed nonetheless to their isolationist constituencies and do resort to protectionist acts, against their overall interests and in breach of their international trade commitments.”

He highlights a recent EU case law which has given a new insight into the problem and has hopefully shown the way for a more open environment based on a properly balanced implementation of the prevailing rules.

Horovitz’ presentation will review the causes and possible remedies to the concerns that this crisis has been witnessing. It will also reflect on the shape of the recovery that the OECD and others have been detecting in view of recent encouraging indications that the global economy might be pulling out of the present slump.

“But the way to recovery is equally fraught with risks and challenges, with stimulus packages and liberalisation deals that often reflect short sighted and exclusionary interests. The presentation will highlight those risks and pitfalls and suggest ways to meet the challenges and turn risks into business opportunities whenever possible.” said Horovitz.

No more mineral exports? – a deserted quay at Bayuquan
port, Liaoning, could be a common sight for the future,
as China continues to close its doors to exports.

Joint venture potential

The attractiveness of joint venture partnerships between foreign and Chinese mining and mineral companies has experienced a resurgence due in no small part to the economic downturn which has forced industry players to streamline their operations while expanding their capabilities. In Qingdao Dennis Meseroll, director of Tractus Asia Ltd, Shanghai, will be speaking on “Overseas investment into China – successful joint ventures”.

The apparent advantages gained through partnering with local Chinese companies may or may not offset recent market challenges such as the end of export VAT rebates, license and fee increases, stronger anti-pollution legislation, and increasing priority placed on domestic demand by the government. These market trends have forced companies to cope with higher costs and export supply shortages.

Also, the detention of four Rio Tinto employees on commercial bribery and trade secret infringements in July has raised tensions within the industry.

The 2008 anti-monopoly law is likely to further complicate wholly owned or joint venture mining and mineral processing investments in China. However, in today’s volatile market there may still be significant incentives to forming a joint venture for mining and mineral operations.

Enhancing sorbent minerals

Industrial minerals, especially clay minerals have various degrees of sorbent capability – an important property permitting mineral applications in the absorbents market. The degree of sorbent capability of industrial minerals depends on the structure and composition and the application properties.

The mixture of different clay minerals based on the application properties of various clay minerals makes highly effective sorbent products.

The paper co-authored by Huitang Zhou, of MinTech International Inc., USA, and Haydn H. Murray, of Indiana University, USA, “Value added development for regular minerals”, deals with an approach to make such mixtures of different minerals and the resultant sorbent properties compared to physically processed activated carbon.

Highly efficient and effective sorbent products can be made with careful selection and using processed natural minerals with both high surface area and surface charge. Some minerals, such as zeolites, diatomaceous earth, possess a high surface area but the surface charge is low. The idealised mineral candidates are the ones that have a reasonable high surface area and at same time a high surface charge. Montmorillonite is an example of this kind.

Owing to highly effective adsorption to odours caused by chemicals and compounds with polarity such as ammonia, methane, formaldehyde, etc. the market value of such sorbent products is in the range of high quality activated carbon.

Ceramics bounce back

Ceramics have always been an important industrial sector in Asia, and has its roots in China several thousands of years ago. The market is also a large and growing consumer of industrial minerals – in particular, kaolin, ball clay, feldspar, nepheline syenite, wollastonite, silica sand, and chamotte.

China today manufactures ceramic tiles, sanitaryware, tableware, and industrial products such as insulators, valued in total at around RMB63,000m. ($9,200m.), according to the Ceramic Association of China. In recent years, China has come to dominate the ceramics markets (see charts) and Chinese ceramic exports to the west have grown significantly.

In his paper “Trends in ceramic raw materials in Asia Pacific”, Murray Lines of Stratum Resources, Australia, covers the range of key minerals used by the industry and defines trends both by countries and within the mineral groups.

The industry is hugely important and although 2009 is proving to be a tough year, the sector will bounce back strongly as the products represent the basic building blocks to our modern way of life. Several companies are identified as growing strongly by merger and acquisition, as is the case in most dynamic industrial sectors, while major players continue to secure high quality mineral sources in the region.

World tile production 7,695m. m2

World sanitaryware production 311m. pieces

World tableware production 1.431 m. tonnes (includes porcelain/bone china)

Zircon & ceramics

Along with chromite, one industrial mineral for which China has always had to rely on imports in order to meet demand is zircon. Although zircon is also used in refractory, chemical, and other speciality markets, it is China’s growing ceramics market that drives demand for China’s appetite for zircon.

This is addressed by Alister MacDonald, director, Technical Ceramic Marketing Services Pty Ltd, Australia, in his paper “The impact of zircon price increases on ceramics and zirconia markets”.

Following a doubling of zircon prices in recent years, it is timely to review the impact on ceramics and zirconia markets and what trends are likely to emerge in the future. During this time the axis of demand has also shifted from Europe to Asia, with China now being the single largest market for zircon and having a far greater influence on the direction of prices.

Meanwhile, mineral sands producers have struggled to remain profitable, owing to ever increasing costs, lower mine grades, and strong exchange rates. There is now a push by producers for even higher zircon prices, despite considerable resistance from customers who are either trying to reduce demand or considering substitution. Analysis of the supply and demand drivers for zircon gives an enlightening perspective on the current state of play.

Fine kaolin in demand

China is famous for its unique and rich coal-series kaolinite resources which produce kaolin grades with properties such as high scattering, perfect ink absorption, high activity and high brightness, good insulating performance, thermal stability, high porosity and hiding power, and low bulk density. However, it is also clear that certain grades of fine kaolin, specifically for paper coating for example, are in short supply, and China requires these demands to be met by imports, unless the domestic industry can develop resources appropriately.

Ming Zhang, Professor of Wuhan Technology University, and vice general engineer of the Suzhou Design and Research Institute of Non-metallic Minerals, China, examines the supply and demand situation for coal-series kaolin in his paper “The processing and application of coal-series kaolin and its development in China”.

In the future, the Chinese coal-series kaolin industry is expected to go towards “large style”, automatic control, fine processing, lower processing cost, and serve high value applications.

Demand for fine kaolin used in paper coating is forecast to reach 1.4m. tonnes by 2010, accounting for over 60% of total kaolin used in papermaking. Demand for calcined kaolin is expected to be 180,000 tonnes, accounting for about 13% of total demand of fine kaolin. Apart from paper coating, fine kaolin and calcined kaolin is also used in paint, printing ink, rubber, plastic, cable, and porcelain glaze.

Talc growth markets

Talc consumption in the Asia Pacific region is about 2.4m. tpa. This market is reviewed in detail by Lance Mitchell, market manager Asia Pacific, Mondo Minerals BV, Australia in his paper “Talc applications in the Asia Pacific region” (see also “Talc trades paper for plastic” p. 54 for a global review of talc supply and demand).

The leading three countries consuming talc in the region are China (1.1m. tpa), Japan (500,000 tpa), and South Korea (300,000 tpa). Paper filling is by far the region’s largest market (just under 50%; see chart), however, Mitchell describes this sector as “least interesting”.

Mitchell sees future growth prospects for talc in plastics and paint in the automotive and white goods sectors, as well as in paint in shipbuilding and offshore oil and gas industry. As with kaolin, the growth in demand for paper coating minerals, which includes talc, is also a potential market opportunity for specific suppliers.

Asia Pacific talc consumption by market application

Source: Lance Mitchell (2009), paper
presented at 8th Chinese IM Conference, Qingdao, 7-9 September 2009.

Specific consumption of refractories (kg/tonne) 1950-2009

Specific consumption of refractories
1950 1980 2000 2009
Steel - World ~ 60 30 18 16
Steel - Japan - 15 11 8
Steel - Europe ~ 60 17 12 10
Steel - USA ~ 50 20 12 11
Steel - China - 55 30 23
Cement 2.2 1.2 0.9 0.7
Glass 15 12 6 5
Copper - 6 4 2
Aluminium 26 20 14 10
Source: Richard Flook (2009), paper presented at 8th
Chinese IM Conference, Qingdao, 7-9 September 2009.

Refractories outlook

The refractories market is one of the key consuming markets for industrial minerals, using a wide range of minerals and intermediate products derived from minerals – and China is the world’s largest refractories market, and is expanding.

As such, an IM conference in China would be amiss without a full appreciation of this market and its implications for future refractory mineral demand. In this respect Dr Richard Flook, managing director, Shinagawa Refractories Australasia Pty Ltd, Australia, covers this topic admirably in his paper “Refractories: between a rock and a hot place”.

Flook shows how the main refractory market sectors shares are split for the leading Asia Pacific countries, and charts China’s extraordinary growth in steel, cement, glass, and ceramics production which has led to its dominance in these markets.

Naturally, these markets are huge consumers of refractories, and of course refractory minerals. Japanese refractory raw material consumption is highlighted, which has seen a decrease in raw material consumption from 1.1m. tonnes in 2001 to 945,000 tonnes in 2008. Trends in the specific refractory consumption in the main end user markets is also examined (see chart).

Forecasts and comments on the future performance of the region’s steel and refractories industries are provided, which, while outlining some challenges, also shows some opportunities.

Synthetic aluminas for refractories

Crude steel production in China during the last ten years has grown from 114.59m. tonnes in 1998 to 502.01m. tonnes in 2008. During this same period, China’s percentage of total world production has also grown, from 14.7% to 37.75%.

Supporting the rapidly growing steel industry is the equally fast growing refractory industry. By 2008, China’s refractory industry had become the world’s largest refractory producer with an output of 24.71m. tonnes.

Dr Yoke Fong, commercial director refractories Asia, of Qingdao Almatis Co. Ltd, Shanghai considers it the right time for China’s steel and refractory industries to adjust their product mix, by upgrading product performance in a more cost-effective manner, to face the increasingly challenging environment.

Fong’s paper, “More than ten years of producing and supplying specialty alumina in China” examines China’s steel and refractories industry and discusses that in order to enter their next stage of development and tackle the global financial crisis that hit the world economies in 2008, more technical innovation is needed.

The present product mix of China’s refractory industry is claimed as “not advantageous”. The percentage of low end products is too high, and China’s refractory makers win competition mainly via price advantage in the global market, which is not very profitable for producers. The limited mineral resources also can threaten the refractory makers, especially those who mainly produce low end products with more natural minerals.

The restructuring of China’s steel product mix is a major focus for China’s steel industry. To increase the competitiveness of China’s steel makers in the world market, its steel producers are encouraged to improve the quality and quantity of their high end products and to increase the ratio of these high value added products within the product portfolio. This has already occurred (see chart) but requires higher performance refractories.

A joint effort between the steel and refractory producers can drive the use of more synthetic and cost-effective materials that will produce high performance refractory products capable of withstanding greater heat, challenging erosion and wear conditions, and enduring more intense thermal cycles to meet today’s extreme service demands.

Such synthetic refractory materials include Almatis’ premium aluminas which are used to upgrade the performance of existing refractories, eg. tabular alumina, magnesia rich and alumina rich spinels,

calcium aluminate cements, calcium hexaluminate bonite, calcined and reactive alumina, and other speciality grades.

Comparison in exporting refractory minerals and a premix

Commodity Export quota Export duty
Dead burned/fused magnesia Yes 10%
Bauxite Yes 15%
Flake graphite No 20%
Silicon carbide Yes 0
Brown fused alumina No 15%
Premix No 0
Source: Gao (2009), paper presented at 8th
Chinese IM Conference, Qingdao, 7-9 September 2009.

China’s steel product mix

Source: Yoke Fong (2009), paper presented at 8th Chinese IM Conference, Qingdao, 7-9 September 2009.

Premixes – exporters’ delight?

Premixing, a concept that was introduced in the early 1990s is now perhaps more than ever attracting interest as China continues to curb export volumes of individual refractory minerals. Jack Gao, general manager, Refmin China Co. Ltd, Hong Kong, describes the process and its advantages in his paper “Pre-mix, a smart strategy for raw material exporting in China”.

In essence, a premix is a material (normally a refractory material) between a raw material and the finished product. It may consist of several kinds of refractory minerals, mixed and blended and can be used as an aggregate or grog to finished products (shaped) or as a kind of simple monolithic.

As Gao explains, there is a clear advantage when it comes to exporting premixes: “It is clear that you can find that premix exporting will not be restricted by export quotas and licenses, and also you can avoid paying export duty, then it can save exporting costs. Besides, for quota restricted products, the exporter can be quota holder only for the premix, there is no restriction for the qualification of the exporting company” (see table).

8th Chinese Industrial Minerals Conference, Shangri-La Hotel, Qingdao, China, 7-9 September 2009. For details and registration