Brazil eyes minerals future

By Alex Feytis
Published: Sunday, 24 January 2010

Following last month’s article on Brazil’s fertiliser minerals market, IM looks at the country’s key minerals including bauxite, magnesite and kaolin, while reviewing ceramic, cement, and refractories markets by Alexandra Feytis, Assistant Editor

Brazil has been severely impacted by the financial crisis, particularly during the second and third quarter of 2009. As a consequence, some of the main companies in Brazil had to reduce production over the last year, such as magnesite and refractories producer Magnesita Refratarios SA, and kaolin producers Vale SA and Rio Capim Caulim (RCC), the latter a subsidiary of French mining giant Imerys.

However, Brazil’s economy appears to have started a healthy recovery from the global recession and the International Monetary Found (IMF) confirmed that South America is starting to experience cautious optimism with Brazil leading the way to recovery over strong economies such as Argentina and Mexico.

As reported by IM last month, the country is focusing on developing its fertiliser minerals markets in order to reach fertiliser self-sufficiency by 2013, with a very promising long-term outlook for fertiliser demand forecasted. In addition, the ministry of mines and energy is working on a new mining law for the beginning of 2011 (IM January 2010, p. 24: Brazil’s rise to recovery).


Leading Brazilian graphite producer Nacional
de Grafite mines the black material at its three
operations in Minas Gerais, including the biggest
one, Pedro Azul (pictured), which has a capacity
of 36,000 tpa


“The collapse in consumption was serious, but not as disastrous as it was estimated at the beginning of the crisis,” said the Instituto Brasileiro de Mineracao (IBRAM).

As the mining association explained, the market is presenting a more favourable light in Q4 2009 “due to the effects of measures taken by the government as regards the extension of credit lines, tax cuts, increased investment in infrastructure, reduction in rates interest, among other”.

The fifth largest population in the world and a major food (1st) and oil producer (14th) ranking among the world top-ten producers for steel, iron, coffee, cotton, meat, phosphate, graphite, fertilisers, cement, and ceramic tiles, Brazil is seen as a blossoming field of opportunities for investors in the mining industry. Firstly, because it is relatively politically and economically stable, and secondly, owing to its diversity of resources, products and markets in addition to a developed agritechnology and agroenergy knowledge (eg. the ethanol fuel experience since the 70s).

Therefore, Brazil’s promise as an “Eldorado” for investors may not be so far fetched.

As Switzerland-based Holcim Ltd, the second world leading cement producer with operations in Brazil, declared to IM, the perspectives are “very promising and there are many opportunities in the Brazilian market.”

While kaolin and refractories minerals are still recovering kaolin being the most affected - cement is among the main industries starting to kick off. Leading Brazilian magnesite producer Magnesita Refrat‡rios SA reported to IM that the Brazilian cement industry, boosted by stronger demand from construction, “practically did not feel the crisis, maintaining stable demand for refractories”.

“I think that we divided into two phases, from 2000 to 2008 where the sector experienced a large growth cycle; and the period from 2008 where there is a drop in production because of the global crisis, but much smaller than the forecast made at the beginning of crisis,” explained to IM Antonio Lannes, manager of research & development at IBRAM. “Today we can say that the industry is in full recovery and will achieve growth levels seen before the crisis as early as 2011,” he added.

Magnesita targets 2012

Brazil is the world’s third largest producer of magnesite after China, and ranks fourth for magnesite reserves after China, North Korea, and Russia. Nearly all Brazilian magnesite reserves are located in Serra das Eguas, near the city of Brumado, in Bahia state. The country hosts two main producers of magnesite, and one producer of seawater magnesia.

“We had a tough job during the last year” Brazil’s leading magnesite and refractories producer, Magnesita Refratarios SA, told IM. The last few months of 2009 were indeed difficult for the refractories world, Brazil included, and the players in the industry had to take action to accommodate the effects of the crisis.

As an immediate consequence, the world’s leading refractories producers, such as Magnesita in Brazil, suffered drops in profits and revenue, resulting in production cuts (IM October 2009, p. 28: Into the fire).

Following the sale of Magnesita in 2007 to South America’s largest private equity group, GP Investments Ltd (GPI) as majority shareholder, the group announced plans to triple dead burned magnesite (DBM) production. Magnesita’s current capacity is 320,000 tpa DBM, 475,000 tonnes dolomite and 1.43m. tpa refractories.

However at the end of 2008, GPI announced a depreciation of $124m. in the fair market value of Magnesita, which it purchased for 38.6% of the company’s capital for R$1,240m.($641m. in 2007).

From being the fifth largest refractories company in 2007, Magnesita gained two places in 2008 when it acquired Germany-based refractory dolomite producer, LWB Refractories GmbH, creating the third largest refractories group in the world, after Versuvius and RHI. “Our goal is now to reach the first rank by 2012,” Magnesita declared to IM. Magnesita exports 43% of its products including: USA (15%), Europe (10%), South America (7.5%), Asia (5%), Australia (3%)and Africa/Middle East (3%).

However, magnesite producers in Brazil have to face competition from China, which under unfavourable currency exchange is quite competitive.

As Eduardo Chohfi, sales manager at magnesite producer Indœstrias Brasileiras de Artigos Refrat‡rios (IBAR) Ltd, explained to IM, “It is very difficult to compete with China”. The quality is better in Brazil than in China but it is difficult to compete with their prices.”

IBAR supplies shaped and unshaped refractories to South America (mainly Argentina, Chili, Peru and Venezuela) and the USA (16,000 tpa) in addition to Europe. The company produces raw material from its magnesite mine in Brumado, located just a few kilometres from Magnesita’s mine. IBAR has also suffered from the effects of the crisis, seeing a 20% drop in its 2008 sales. However, Chohfi remains positive and expects “recovery by March or April 2010”.

Buschle & Lepper SA (B&L), based in Joinville, Santa Catarina, produces seawater sourced magnesia, magnesium hydroxide, and magnesium carbonate for speciality applications in chemicals, pharmaceuticals, cosmetics, and food.

The company has supplied the Latin American market for more than twenty years, and the European, USA, and Asian markets for more than five years. Most of its production is for exports to Latin America, the USA and Asia.”

B&L’s production capacity for synthetic magnesia extracted from seawater is 6,000 tpa. However, the company plans to expand capacity to 12,000 tpa by the end of 2010.

“In the magnesia market we are facing lower demand mainly in the industrial and pharmaceutical areas. The food market is showing less of a drop in demand. We believe that world demand for magnesia will rise by the end of 2010 and the beginning of 2011,” explained Cristala Buschle, director advisor, B&L.

Bauxite

Brazil holds 10.6% of the world’s bauxite reserves (34,000m. tonnes in 2007). However, the majority, some 95%, is metallurgical grade. The remainder is exploited for non-refractory non-metallurgical applications, although there are believed to be some unexploited refractory grade deposits.

About 95% of the bauxite reserves are located in Para state, in the north of the country, where it is mainly exploited by Mineracao Rio do Norte (MRN), Companhia Brasileira de Aluminio (CBA), and Alcoa Inc.

Brazil is the third leading producer of bauxite with 24.7m. in 2007, being responsible of 12.7% of the world production after China and Australia. Brazil’s alumina production reached 63,300 tonnes in 2007, 8.4% higher than 2006 according to the DNPM.

The majority of Brazil’s non-metallurgical grade bauxite is used in non-refractory markets, with refractories consuming just 1.2% of total Brazilian bauxite production. The main producer is Minera‹o Curimbaba Ltda, part of the Curimbaba Group, located in Pocos de Caldas, Minas Gerais state.

The company has considerable resources, including: 250 bauxite mines (> 300m. tonnes reserves); 36 refractory clay mines (2.8m. tonnes); 30 potash mines (500m. tonnes); 5 limestone mines (20m. tonnes); and 1 quartz mine (5m. tonnes).

“Total production capacity for bauxite and clay related products produced by Mineracao Curimbaba is around 250,000 tpa of finished products from the 700,000 tpa mined,” the company told IM.

The main markets for Curimbaba, in addition to supplying bauxite feedstock for Elfusa’s fused alumina production, include: petrochemicals, solder for welding, jet-blasting, ceramics, refractories, clarification of mineral oils, smelting, and agrochemicals.

Fused minerals

Brazil hosts some important producers of fused minerals: Elfusa, Treibacher Schleifmittel Brasil, and Saint-Gobain Materiais Ceramicos Ltds.

Elfusa Geral de Eletro Fusao Ltda, in Sao Joao da Boa Vista, Sao Paulo, is also part of the Curimbaba Group, and is the country’s leading fused minerals producer with a production capacity of 120,000 tpa.

Elfusa produces a range of grades of brown, white, and pink fused alumina, as well as fused zirconia, fused mullite, fused wollastonite, spinel, and calcium aluminate cements. “Today approximately 80% of production goes to the refractory industry,” Elfusa told IM.

Elfusa’s sales of grits for the refractory market in Brazil reached in 2009 the same figures as 2008, around 60,000 tonnes. According to the company, the main challenge is “the exchange rate for our international market”.

However, Elfusa estimates that in the domestic market, opportunities are the growing steel industry and house building. “Governmental exemption of taxes for the car industry and for building materials helps to increase sales of these products, and therefore the consumption of refractories,” explained Jaime Splettstoser from Elfusa.

The company has planned to invest in a new 30,000 tonnes brown fused aluminum oxide furnace.

Treibacher Schleifmittel Brasil (TSB), part of Imerys’ subsidiary Treibacher Schleifmittel AG, Austria, has a capacity of 60,000 tpa of fused alumina and fused mullite - in addition to silicon and calcined alumina for abrasives, refractories, and ceramics at its plant in Salto, near S‹o Paulo.

Graphite looking to batteries

Economically exploitable reserves of graphite are mainly located in Minas Gerais, Cear‡ and Bahia, with 152.6m. tonnes combined reserves. Brazil ranks second in natural graphite reserves (34.8% of the world total), and is the world’s third largest producer (7.5%), after China (69.9%), and India (11.6%), with a production of 77,000 tonnes in 2007.

The best occurrence is in Pedra Azul, Minas Gerais, and is exploited by Nacionale de Grafite, one of the world’s leading natural graphite producers, which has over 250m. tonnes of measured ore reserves, possibly one of the largest independent reserve in the world.

Nacional de Grafite, which has an annual production of about 52,000 tonnes from its three operations in Minas Gerais, has revealed to IM that it is ready to launch a new grade of spherical grade for the battery market, aimed at the lithium-ion design.

The company is expanding its portfolio into the battery market following the growing interest in the automobile industry as it considers electrification of the vehicle.

Nacionale de Grafite supplies graphite products for a number of markets including refractories and brake linings and pads. These markets, owing to their intrinsic link to steel and traditional automobile sectors have suffered considerably since the global economic downturn began in September 2008.

Leading producer of kaolin

Brazil is the world’s sixth largest kaolin producer with an estimated production of about 2.527m. tonnes in 2007, about 6.8% of world production according to the Departamento Nacional de Producao Mineral (DNPM), the USA being the major producer with an annual estimated production of about 6.750m. tonnes in 2008. Brazil accounts for 91% of South America’s production and 6% of global output.

The most commercially important deposits are of sedimentary kaolin in the Amazon Basin, located in the north of the country. These deposits have become an important source of high purity grades of kaolin for coating paper, with their natural high brightness, fine particle-size distribution, good rheology and low abrasion (absence of abrasive minerals such as quartz < 5µm). That is why Brazilian kaolin is mainly used in paper applications, even though limited volumes are used in other industries.

The majority of kaolin in Brazil is produced by two major international players Ð Imerys and Vale  which accounted for 3.5m. tonnes in 2008.

Imerys: shift from UK to Brazil

French industrial minerals giant Imerys SA exploits kaolin at its Rio Capim operation under subsidiary Rio Capim Caulim (RCC).

Imerys’ Rio Capim Caulim plant has a capacity 1.6m. tpa and is the largest single kaolin plant in the world, over 90% is exported into Europe, Asia, and North America.

Imerys’ European logistical ties were strengthened in 2008 by establishing a 600,000 tpa kaolin port terminal in Antwerp with Belgian shipping group Sea-Invest (see IM December ’08, p.24).

Imerys produces a world total of 4m.-4.8m tpa of kaolin, including an estimated 1.6m. tpa in Brazil. In its annual report 2008, Imerys reported sales for its pigments for paper division at Û764.4m. in 2008, down 4.3% comparing to 2007. To adapt to lower demand, kaolin production capacities at the Sandersville (Georgia, USA) unit were reduced in the Q3 2008.

Contrary to Vale, Imerys has not announced any cut in its kaolin output in Brazil. However, the company has increased production of its coating kaolin in Brazil when it shifted kaolin coating grade production in Cornwall, UK, to its Rio Capim operations in 2007, the UK operations focusing on filler grade production (see IM August 2006, p. 6: Imerys waters down UK kaolin).

Vale still suffering

Brazilian mining group Vale SA’s participation in the kaolin business is through its subsidiary Caemi Mineracao e Metalurgia SA (Caemi). Caemi has two operations and supplies thin kaolin and laminates to the paper industry through two companies: CADAM SA and Para Pigmentos SA (PPSA).

Both Imerys’s processing plant and port and Vale’s operations are located in the same region, near the Capim River, in Barcarena, Para state. Vale has a second operation via CADAM, at Morro de Felipe’s mine, near the Jari River, in Amapa state, on the borderline of Para  and Amapa States. “CADAM focuses its products on ultrafine clays while PPSA covers delaminated, platy and fine platy products,” Vale explained to IM.

Vale announced a strong operational and financial performance for the group in Q3 2009, “returning to growth” after the impact of the global financial shock although the kaolin section is still suffering the effects of the global downturn.

Between January and October 2009, Vale produced 542,000 tonnes of kaolin, 39.7% down from the 898,000 tonnes produced during the same period in 2008. On a monthly basis, the kaolin section saw a cautious improvement. In Q3 2009, Vale’s kaolin production reached 210,000 tonnes, increasing 8.1% relatively to Q2 2009, when it was recorded at 194,000 tonnes, “responding to stronger demand from Asia”.

CADAM, which supplies the Asian market, expanded production to 126,000 tonnes, in a 25.6% increase compared to Q2 2009. On the other hand, PPSA, which produces products destined to other markets where demand remains weak, produced 83,000 tonnes in Q3 2009, 10.7% lower than Q2 2009.

Vale’s global kaolin production was 1.05m. tonnes in 2008, down from 1.345m. in 2007, the group even went as far as putting its kaolin businesses up for sale in 2007 but placing out owing to lack of interest.

At the end of 2008, Vale cut production at its two Brazilian kaolin sites. PPSA output has been reduced by 17.5% (639,000 tpa to 528,000 tpa), and at its CADAM operation has been cut back by 15.8% (from 714,000 tpa to 602,000 tpa) (IM December ’08, p.11).

Caemi produced 1.129m. tonnes of kaolin in Brazil in 2008 (CADAM: 602,000 tonnes; PPSA: 528,000 tonnes). However, after production cuts end of 2008, a 53.5% fall in kaolin production was reported for the Q1 2009 period (IM 07 May ’09: Vale kaolin output down 53%).

Other minerals

The country has limited reserves of lithium located in Minas Gerais and Ceara states. Brazilian production comes from Minas Gerais and represents about 1.7% (430 tonnes) of world production according to DNPM.

Brazil uses its lithium in the chemical, ceramic and nuclear industry in addition to metallurgy and manufacturing of batteries. In 2007, the domestic consumption of lithium compounds was 816 tonnes, with an increased of 16.6% compared to 2006.

Sao Joao del Rei based Companhia Industrial Fluminense (CIF), part of AMG Advanced Metallurgical Group NV, revealed to IM it is operating at 90% of its 11,000 tpm capacity production for its Li-feldspar product and 100% capacity for its 20 tpm tantalum concentrate.

CIF is looking into a number of expansion projects amidst the economic gloom and wants to increase its mining products output, in addition to double the current capacity, and installing a flotation unit to separate the spodumene from the feldspar/pegmatite, to produce about 3,000 tpm spodumene in 2011.

In 2007, Brazil produced about 1.9m. tonnes gypsum, which represents 1.5% of the world production according to DNPM, the USA being the world leading producer followed by Spain and Iran. Mining for gypsum occurs in the Rio Grande area for the construction industry.

Industrias Nucleares do Brazil SA (INB) mines minsands (ilmenite, monazite, rutile, and zircon) from Buena and Delta, Paribia near Rio de Janeiro.

Slow recovery for refractories

The last year has been tough for the refractories market, primarily driven by the steel industry which consumes 70% of world refractories and was heavily impacted by the financial crisis (IM October 2009, p. 28: Into the fire). Brazil was not spared even though the first signs of recovery are starting to cautiously appear.

Magnesita Refratarios SA suffered of the effects of the downturn, reporting a 27.5% decline in year-on-year Q1 2009 volume sales to 353,657 tonnes of combined products which has resulted in a 22.5% fall in net revenue to R$451m. ($215.89m.).

In terms of regional sales, overall domestic sales from the South American operations fell 44.9% to 61,998 tonnes, with falls in refractories (down 43.4% to 44,806 tonnes), and the Other Minerals segment which includes dolomite, chromite, talc, and magnesia (down 52.8% to 15,362 tonnes).

The export market fell less with a 22.2% fall in sales to 291,659 tonnes with sintered magnesite sales down 97% to 852 tonnes. The sales in the Other Minerals segment was up 22.7% to 154,144 tonnes.

But the company counter attacked the crisis by “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 historical levels,” revealed Thiago Rodrigues, Magnesita’s global chief financial officer (IM October 2009: Into the fire - View from the top  Magnesita Refractarios SA).

In Brazil, the volume of refractories 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 [steel] mills in Brazil, which is a clear indication that produced volumes will grow during the next couple years,” added Rodrigues, pointing out the fact that distributors aggressively de-stocked in the last few months, another indicator of market recovery (see panel p.51).

“We can see a bit of heating up but not yet real facts”, reported Livio Togni, operation director of refractories group Togni SA Materiais Refratarios. Togni revealed to IM that the company has been working at 65% of capacity since March 2009 owing to the financial crisis (see panel p.56).

Cement: “A solid organic growth”

The cement industry is one of the very promising markets in Brazil which produced 1.8% of world production in 2007 and ranks eighth among the world leading cement producers. Even though the industry was not spared by the global downturn which particularly affected construction and housing during the last year, the segment remains quite healthy, with a bunch of large producers such as France’s Lafarge, Switzerland’s Holcim Ltd and Brazil’s Votorantim Cimentos Norte e Nordeste.

Rogerson Miranda, commercial superintendent of Magnesita which also produces refractories for the cement industry, confirmed that the sector was “stable” in Brazil.

“The Brazilian cement industry is highly competitive with many players, both local and international, and makes use of state-of-the-art technology in production,” Holcim told IM. Holcim is the world’s second leading cement producer after France’s Lafarge and before Cemex, HeidelbergCement and Italcementi.

As the Swiss-based cement manufacturer explained, “After a long period of low economic growth, Brazil has recently presented good perspectives and the industry has responded very promptly, reactivating, modernising the existing production lines and implementing new ones to meet the growing demand.”

Despite lower sales and net earning in its Q3 2009 results, Holcim reported an “achieved solid organic growth” in sales in 2009 in South America (IM 11 November 2009: Cement industry’s Q3 woes.)

Holcim Brazil, which employs about 2,000, has been present in the country for almost 60 years by means of its cement, concrete, aggregate and co-processing activities. The company works in the south-east region with five cement plants (Minas Gerais, Rio de Janeiro, Sao Paulo and Esp’rito Santo), as well as 30 concrete plants and three aggregate plants.

In 2008, Holcim Brazil demonstrated gross revenues of approximately R$1,400m. ($791m.) and produced 4m. tonnes of cement.

The raw materials used in the production of cement include limestone and clay which both come from the company’s own quarries located close to the production units. Slag is a by-product of the steel industry used to replace non-renewable natural resources. The plaster comes from Holcim’s own quarry located in Pernambuco, in the north-east.

Even though the current market remains affected by the crisis, Holcim is “in the phase of analysis of investment alternatives to better meet the market demand”.

Among the positive factors pointed out which will have a direct impact on the cement industry are several initiatives of the Brazilian government, such as the programme “Minha Casa, Minha Vida” (My House, My Life), which is intended to reduce the housing deficit by building one million houses by 2011. “The cement has less suffered the consequences of the crisis as Brazil has incentive to build houses,” assured Silvio Togni.

Also, many infrastructure works should be carried out in the next few years. The Growth Acceleration Plan (PAC) of the Federal Government and the preparation of the cities that are going to host the FIFA World Football Cup games in 2014 and the Olympic Games in 2016 are a few of the good initiatives that will allow future market growth.

Magnesita, which experienced contrasting impacts from its two largest domestic markets, cement and steel, expects the consumption of cement which represents 15% of its sales to be maintained at the same levels as 2008, citing the key reasons to be a governmental house building programme and construction of infrastructure works for the 2014 FIFA World Cup in addition to the Olympic Games hosted in Rio de Janeiro in 2016.

“It is a market with a great potential of growth and the industry has very good expectations for the coming years,” Lafarge confirmed to IM, which has been operating in Brazil for 50 years.

In 2008, Lafarge cement sales reached 51.1m. tonnes in the domestic market and, according to the company, Brazil has a housing deficit estimated at 8m. units. This is seen a windfall for Lafarge which has “the ambition to continue developing [its] business in the country for many other decades”. “The group strategy worldwide is to develop its cement activity in the countries that have a great potential of growth. And Brazil is one of them,” believes the French company.

Ceramic tiles: a flourishing industry

Production of 713.4m.m2 in 2008, a domestic market of 605.4m.m2, a growth of 11.9% compared to 2007: Brazil is the third largest world tile producer and the second largest tile consumer market after China.

The Brazilian ceramic tile industry has reached this position through steady, continuous and rapid growth, particularly during the last few years, reaching a production of 713m.m2 in 2008 from 565.6m.m2 in 2004.

The country’s leading position is the result of ongoing investments in state-of the-art processing technology, in addition to a distinctive design which has created additional demand from several regions in the world.

As underlined by Anselmo O. Boschi, professor at the Federal University of S‹o Carlos (UFSCar) and coordinator of Ceramic Tiles Laboratory (laRC), the amazing growth of 11.9% between 2007 and 2008 would have been even bigger if tile production during the last few months had not been compromised by the economic downturn.

However, the strength of Brazil’s domestic market may attenuate the impact of the international crises on the industry and Boschi forecasts a growth of 5% for 2009 compared to 2008.

The country’s ceramic tile sector consists of 94 companies with 117 processing facilities located in 18 states. The hubs of tile production are in the states of S‹o Paulo and Santa Catarina, with the north-east of the country expanding its capacity.

Some of the players in the Brazilian tile industry include: S‹o Paulo based Ceramica Atlas Ltda; floor tile producer Ceramica Batistella Ltda; Curitiba, Parana based Casagrande Pisos Cer‰micos Ltda; and Urussanga located Ceusa-Ceramica Urussanga SA.

Outlook: “The worst is over

“The worst is over,” believes IBRAM warning however that the recovery in consumption will “occur gradually, and the levels of 2008 can only be observed from 2011”. According to the Brazilian mining association, the market will “adjust to a new level of demand, lower and during this period should occur movements recovery between supply and demand of stock replacement and adjustments in prices.”

After having suffered the effects of the global downturn, Brazil seems to be on the path of health, an inhomogeneous recovery depending on the sectors. As already reported by IM, the long-term outlook for fertiliser demand is promising but, leading the way to better days, the cement market is expected to continue its steady growth far before Europe and the USA, more heavily impacted by the crisis. The 2016 Olympic Games and the 2014 FIFA Football World Cup in addition to government plans for construction will certainly boost growth.

“Brazil is expected to go through a sustained growth phase in the next few years, as the country has demonstrated political and economical stability, along with a responsible management of public finances,” Holcim told IM. Therefore, this attitude is seen as “an encouragement to new investments”.

“Recovery will take some time,” believes Livio Togni who forecasted a “flat” year for 2010, “stable but in very low capacity”, followed by recovery at the beginning of 2011 before facing “a firm recover.”

If the country can resolve some of its major concerns - infrastructures, power, strong currency - growth is expected to continue steadily, reaching a full recovery around 2011.

It is also likely that this growth will be parallel to that of China and other growing economies in Asia. “China has an important role in the salvage value of mineral commodities,” commented to IM Antonio Lannes from IBRAM, pointing out that the country is building an infrastructure for 800m. Chinese who live in rural areas. As he explained, “we can already see the rehabilitation of countries such as Japan, South Korea and Germany, key customers as well So there is a trend of production growth for the sector in coming years. This directly influences the demand for minerals.”



Magnesita: “We expect a year of good results”

Thiago Rodriges, Magnesita’s global chief financial officer, told IM about the challenges and opportunities in Brazil

How is the industry performing in Brazil?

TR: The Brazilian industry, just like the global industry except China, presented a sharp decline during the global crisis, in particular the steel industry, accounting for more than 85% of our revenues in Brazil.

In contrast, we saw in the second half of 2009 a fast recovery of the Brazilian industry above the world average. It is estimated that the recovery will make front to the decline in the beginning of the year and the Brazilian GDP for 2009 may not fall, which will not happen in most of the countries especially the developed world. In 2010, analysts are projecting a Brazilian GDP growth above 5%.

After the first half of 2009, the Brazilian steel industry has considerably increased its production. Consequently, the sales of refractories rose net revenues in Q3 2009 were 6.5% higher than Q2 2009, reaching R$ 483m. ($272.6m.). The improvement of the steel industry was due because of the domestic market recovery. In 2009, we saw record sales of cars (3.14 m.), household goods, buildings, and others, driven by the government tax incentives.

The Brazilian cement industry has not suffered from the crisis, mainly because of the domestic market which guaranteed rise in sales of cement. This segment represents about 10% of Magnesita’s revenues and has been increasingly important production mix. Government programmes for housing and the increasing credit supply were responsible for fostering this market.

What are the challenges/opportunities?

TR: The main macroeconomic challenges are the high tax burden, the reduction of government expenditures and a lower-than-expected recovery in developed countries. Despite a still quite high tax burden in relation to the Brazilian GDP (~37%), we see an attempt by the government to change with tax incentives for the industry.

For Magnesita, the tax burden and the lower-than-expected recovery of developed markets can offer a risk. But we are confident that American, European and Asian markets will recover in 2010. After the acquisition of LWB, we operate in all these markets which provide us a competitive advantage in manufacturing and logistics cost. The greatest opportunity of Magnesita is to export our business model, known as the CPP model (cost per performance), to steel customers in the USA, Europe and Asia. This model has already two decades of success in Brazil and will ensure greater profitability in those markets.

What is your forecast?

TR: For 2010, we expect for sure a better year than 2009. The domestic market should be as strong as it was in 2009, and even better with the increase in the population income. With higher Brazilian exports, we expect a year of good results to the Brazilian economy and Magnesita itself.


Refractories: Togni SA

Togni SA, located in Pocos de Caldas, Minas Gerais state, produces shaped and un-shaped refractories in addition to raw material as the company owns three plants and five mines.

Two plants are located in Pocos de Caldas, one of which is an integrated facility from clay mining to end products, and the other plant processes raw materials to produce high alumina and fireclay chamotte.

In Sacramento, located in western Minas Gerais, a third plant produces magnesia sinter, magnesia-chrome sinter, mullite grog, and synthetic bauxite.

Togni also has magnesite operations, with a mine in Brumado, in Bahia State. The company has a total annual production capacity of 60,000 tpa, including about 20,000 tpa of magnesia-based products and 40,000 tpa of alumina-based products.

Contrary to most of the other refractory companies in Brazil, Togni’s products are mainly used for non-metallurgical refractory applications: 5% alumina, 5% for cement and lime; 5% chemicals, 5% glass and 25% others such as food and non-ferrous. The remaining 45% is dedicated to the steel and iron industry.

“The Brazilian companies are waiting for 2010,” Togni explained, forecasting a slow recovery for Q1 2011.


IBAR : “It is difficult to compete with China”


IBAR, which mines and processes magnesite in Brumado,
Minas Gerais (pictured), just a few kilometers from Magnesita’s
mine, supplies shaped and unshaped refractories to South America,
the USA (16,000 tpa) and Europe.

Nacional de Grafite expanding its portfolio


Leading graphite producer Nacional
de Grafite has a capacity of about 52,000
tpa of graphite grades, mined and processed
in its three operations located in Minas Gerais:
Salto da Divisa (7,000 tpa), Itaperica (9,000 tpa)
and Pedra Azul (36,000 tpa Р pictured). After
mining, grinding, milling, flotation - up to 7 times
each for top quality Р chemical treatment and
drying as showed above, the processed graphite
is sent by trucks to Santos port, near S‹o Paulo,
for exportation.