Overall, how is the
TR: The refractories industry is
very dependent on the steel volume market (not price) and, to a
lesser degree, the cement market. The steel market ex-China
suffered a decline of 35% in produced volume between Q308 and
Q109, directly impacting revenues of the industry. The cement
market was much less affected, mainly because of
governments stimulus programs.
Magnesita counter attacked the
crisis reducing fixed costs, especially regarding the workforce
(a fixed cost in Brazil), controlling investments, and paying
closer attention to working capital. Also, Magnesita improved
its product mix, focusing on higher margin goods, selling
excess sinter to trading companies in order to generate cash.
As a result, Magnesita profitability margins are coming back to
When and where do you
foresee the earliest, and most likely sustained
TR: Chinas steel market was
the least affected by the economic crisis. In fact, China
continued to produce steel and is responsible for 50% of world
steel production, compared to 35% six months ago. In Brazil,
the volume produced is closer to pre-crisis levels now at 35m.
tpa (run rate), and Magnesita expects this uptrend to continue
because of the competitive advantages to produce steel in the
region (labour costs, proximity to iron ore mines, quality). We
see clients planning to open mills in the Brazil, which is a
clear indication that produced volumes will grow during the
next couple years. Also, distributors aggressively de-stocked
in the last few months, another indicator of market
How do you see the industry
TR: Magnesita is prepared to grow
organically and through acquisitions, since the companys
vision is to become the largest and most profitable refractory
company until 2012. The refractories industry is still too
fragmented and we imagine that it will keep consolidating. More
than 50% of industry players have insignificant market share.
The main factors influencing the industry will be the ability
to align interests with clients, global presence in order to
better serve clients, and low cost access to raw materials.
Magnesitas business model, based on steel volume, puts
the company in position to profit from this trend.
Which are the main
challenges in refractory mineral supply?
TR: The main challenges are
intrinsically related to the industrys future: alignment
of interests with clients since the steel industry is
increasingly trying to reduce fixed costs; establishment of
global presence because we need to serve clients in every part
of the world; and access to quality raw materials (magnesite or
dolomite) at a low cost, because this is what will ultimately
determine the profitability and quality of the refractories
produced. Magnesita is the only refractory company fully
vertically integrated, which means that we have presence in the
whole value chain, controlling the production of raw materials
to providing integrated solutions in refractories to our
clients, going through the production of a range of different
refractories to each specific client. Another competitive
advantage of Magnesita is the size of its mines (more than 200
years of high quality magnesite, the biggest open pit in the
world). Magnesita can produce sintered magnesia with 98.4% of
purity, which other companies can only produce using seawater
in a much more expensive process.
What are the chief
challenges and opportunities facing the industry?
TR: The main challenge and
opportunity to the global refractories industry is to establish
a solid presence in China, due to the increasing participation
of this country in the steel and cement production. First
movers will have a great advantage because it is a nascent high
growth market, and the opportunity to set standards and win
clients in China will ultimately provide financial strength to
compete in more difficult markets, as Europe, for example.
Magnesita has a plant in China which is producing in full
capacity at 120,000 tpa, and we have plans to double the
capacity in 2010, since we have all our production sold out
until the end of the year. We will be the largest refractory
company in 2012, and China plays in a key role in our
For views from the PRE and TRI see p.90