The squeeze on North American lime

By Alex Feytis
Published: Monday, 23 July 2012

The lime market, which started to recover in 2010, is not yet back to pre-crisis levels, but steel and flue gas desulphurisation could bring some growth in the US Alexandra Feytis, Correspondent

The North American lime industry has suffered a volatile time since the 2008-09 downturn of the global economy, which hit its main markets, such as steel and the construction markets, hard.

But, while the sector is not back yet to the pre-crisis levels, it has seen some improvement during the past year.

“The US lime industry is doing fairly well, although a number of plants remain shut. Some of these are old and may never reopen in their present state,” Michael Miller, US Geological Survey (USGS) lime specialist, told IM.

“Production-wise, the industry has recovered a significant amount of the sales lost during the recession,” he added.

According to the USGS, consumption/production fell by 20% during the 2008-09 recession to less than 15.8m tonnes. Estimated production for 2011 bounced back to 19.1m tonnes, but that is still almost 2m tonnes off the peak year of 2006, which saw production hit 21m tonnes.

A source from a leading producing company confirmed to IM that the North American market “remains flat” as a result of both the overall economic uncertainties abroad and in the US, while production costs continue to rise.

“There are concerns over the market and it is difficult to see how it will evolve during the remainder of the year”, the source said.

The market remains slow and has been since 2008 when new construction projects were significantly reduced due to the economic slowdown, Kelvin Reinhardt, executive director of the Lime Association of Texas, told IM.

However, there has been more encouraging signs. US Lime & Minerals Inc., a leading North American lime producer, reported some improvement in its Q1 2012 lime and limestone revenues compared with the corresponding period last year. The US company added that increased demand, principally from its steel customers, plus price increases for its lime and limestone products, boosted its Q1 sales volumes.

 


“Demand for lime from the steel industry has returned to pre-crisis levels faster than anticipated,” Lhoist North America, the North American subsidiary of the Belgian conglomerate Lhoist and the second-largest producer of lime on the region, recently told IM.

The company announced in May that it was expanding capacity at its O’Neal plant in Alabama by 400,000 tpa high magnesia lime products for use in the steel industry. Lhoist’s operations in the south-east of the US produce approximately 700,000 tpa high magnesium lime.

North American production

North America produced an estimated 21.2m tpa of quicklime and hydrate in 2011, about 6.5% of world global production at a value of about $2.2bn. Canada remains a small producer (1.9m tpa in 2011) compared with the US, which ranks second with 19.3m, with India third (15m tpa). China is the world’s leading producer with 200m tpa or 60.6% of global output.

According to the USGS figures, there were 31 companies producing lime in the US at the end of 2011, which include 21 companies with commercial sales and 10 companies that produced lime strictly for internal use, for example, sugar companies.

These companies own 72 primary lime plants - plants operating lime kilns - in 28 states and Puerto Rico.

The North American industry is dominated by a small number of companies. The leading companies are Carmeuse, Lhoist North America, Graymont Ltd, Mississippi Lime Co., US Lime & Minerals Inc., Martin Marietta Magnesia Specialties LLC, Southern Lime Co., and Arcelor Mittal USA Inc.

The first three have plants in Canada, Mexico, and the US, while Mississippi Lime is the industry’s low-cost producer and has an ideal location for its huge plant near the Mississippi River south of St Louis, enabling the company to ship long distances by water and rail as well as by truck.

However, as USGS’s Miller explained, none of these companies have a full nationwide presence. Lhoist probably comes closest, although it has no plants in the Midwest. Carmeuse has no plants west of the Mississippi River, while Graymont has no presence in the South.

The four leading US lime companies produced quicklime or hydrate in 24 states and accounted for about 72% of US lime production in 2011. Alabama, Kentucky, and Missouri, are the principal producing states, with more than 2m tpa each. Nevada, Ohio, Pennsylvania, and Texas produce more than 1m tpa each.

The past 50 years have seen considerable growth in US lime output, despite significant decreases during poor economic times and some major market shifts.

As the USGS described in its Mineral Industry Survey for the US lime sector, between 1960 and 2009 lime production grew 67% from a reported figure of 11.7m tonnes in 1960, to a peak of 19.6m tonnes in 1974. During the following 35 years, lime production was much more volatile.

After becoming “fairly stable” through the late 1970s, a 20-year low was seen in the early 1980s. Production then started to recover, only to slump again, before showing “ a prolonged period of growth from 1987 to 1998”.

Production dropped for four successive years from 1999, before rising for the next four years, culminating in its output peak of 21m tonnes in 2006. Lime production saw small falls in 2007 and 2008, before plummeting in 2009 as the global economic turndown bit.

Carmeuse

Carmeuse Lime & Stone, North America’s leading lime producer, provides lime and limestone products for a variety of commercial and industrial applications, including flue gas desulphurisation (FGD), construction, steel, glass and paper production, water, waste and environmental treatment.

Carmeuse Lime & Stone is part of Belgium-based Global Carmeuse Group, a €1.3bn company founded in 1860. Carmeuse group has more than 90 production facilities operating worldwide in 13 countries producing 13m tpa lime in addition to 33m tpa limestone and aggregates.

The company is the largest producer of lime and limestone products in North America, manufacturing and distributing up to 7m tpa of finished products.

Its 32 manufacturing facilities - including high-purity chemical limestone and aggregates and high-grade silica sand - supply 33 states and provinces in the eastern US and Canada, with more than 2,400 employees.

As Carmeuse reported in its Q1 financial results, volumes have been hit by poor winter conditions, an increase in energy cost, and a slowdown in the construction and steel industries, some of its main end markets.

“Despite steel production exceeding anticipated levels in North America, the sales volumes performance has shown a decline across all products especially in the FGD market and in the building and construction sector,” Carmeuse said.

In North America, the group said that the net turnover for Q1 increased by 7% “owing mostly to continued strong sales to steel industry, which maintained higher than expected operating rates, recording during this first quarter the highest level of production since mid-2008”.

Carmeuse, however, pointed out that the mild winter and low gas prices led to some shortfall in flue gas treatment activity.

Graymont acquires Western Lime

During the past few decades, the lime industry has consolidated into a handful of companies, with the four leading companies accounting for about 80% of production in 2009, according to the USGS data. The most recent was made by Graymont, the third-largest producer of lime in North America.

The company acquired on 30 March this year its competitor Western Lime Corp. which was previously North America’s sixth-largest producer.

This acquisition is consistent with Graymont’s strategy for growth and its objective to become the leading player in the lime industry.

In Canada, Graymont subsidiaries have operations from New Brunswick to British Columbia. In the US, subsidiary companies operate in Ohio, Pennsylvania, Wisconsin, Washington, Oregon, Montana, Utah and Nevada.

Graymont also has a significant investment in Mexico, with a minority equity interest in Grupo Calidra since 2003, the largest lime producer in Mexico.

“With this acquisition Graymont both strengthens its ability to reliably serve lime customers, and its knowledge and expertise at all levels to complement its customer value proposition,” Bill Dodge, Graymont president and CIO, said at the time.

“We saw a natural alignment with Western Lime in combining our operations. Both companies operate on solid common values, a strong safety culture, a shared commitment to their customers and employees, a commitment to improving environmental performance and engaging with the communities where they operate, and delivering value to all of their stakeholders” he added.

The combination brings together Western Lime’s 92 years and Graymont’s 64 years of experience in the lime industry.

Western Lime is a sixth-generation family-owned and operated business, with three lime plants in Wisconsin and Michigan.

Martin Marietta expands

Martin Marietta Magnesia Specialties LLC Inc. (MMMS) announced in May plans to significantly expand dolomitic lime production with the addition of a sixth kiln at its Woodville, Ohio plant.

MMMS is a wholly-owned subsidiary of Martin Marietta Materials Inc., the US’s second-largest producer of construction aggregates.

As reported by IM, the new rotary kiln is the main part of a $53m investment programme for the facility that will add 900 tpd dolime production capacity (328,500 tpa) and which is expected to be operational in Q4 2012.

The investment programme also provides for additional product storage and load-out capacity, and modifications to existing quarry production equipment.

MMMS’ Woodville facility is the largest dolime plant in North America with 750,000 s.tons pa. The majority of the lime produced in Woodville is sold as a flux to the steel industry to purify steel and extend refractory life.

“The expansion of the facility reinforces the reliability that Martin Marietta Magnesia Specialties has provided to its steel customers and also supports the continued growth of our Magnesia Chemicals business segment, a major user of high-purity dolomitic lime,” John Harman, MMMS president, said.

MMMS is also the largest producer of synthetic magnesia in North America (that is, magnesia sourced from brines or seawater), at its Manistee, Michigan facility. Production capacity is about 315,000 tpa intermediate magnesium hydrate.

Challenges

The impact of the recession still casts a shadow over the overall economy, bringing uncertainties for the rest of 2012. Developing markets and increased production costs also remain among the main concerns for the North American lime industry.

North America’s leading lime producer, Carmeuse group underlined in its first-quarter financial results that energy prices - most notably crude oil - have held up in recent months, reflecting geopolitical tensions and the risk of supply disruptions.

“Overall increase of energy costs negatively impacted the group’s operating performance,” Carmeuse said.

A sudden shift in fuel usage between coal and natural gas at lime plants has also been observed in the industry. A leading lime producer confirmed this trend to IM. “That is something we are considering for the future in order to reduce our production costs,” he said.

A similar shift from oil to coal was seen in lime plants after 1973 following a 327% jump in oil prices, which dramatically increased lime product costs.

Constructing new lime plants, especially in what are termed non-attainment areas - parts of the country that already exceed national air pollution limits - is also a challenge for the industry.

“The industry usually tackles this by replacing old, less efficient and expensive to operate lime plants with new ones in the same area or location so they can utilise the air emission permits from the old plant,” USGS’s Miller told IM.

“The new plants/kilns are usually larger in capacity but less polluting, so it becomes a win-win situation,” he added.

Other factors include environmental regulations and health and safety regulations. As Miller confirmed, safety is a big concern in the lime industry at present.

According to the Mine Health and Safety Administration (MSHA), a US federal enforcement agency responsible for the health and safety of the nation’s miners, statistics indicate that the lime industry has a significantly higher accident rate than similarly classified sectors.

“As a result, the US National Lime Association (NLA) and its members are developing new education and training programmes in order to try to reduce these numbers and make the industry safer,” Miller said.

Steel & FGD

In 2010, the US economy was recovering from the longest recession since the Great Depression of the 1930s.

“Lime consumption reflected the nation’s economic recovery, strong in some sectors, while lagging in others,” the USGS said.

Steelmaking remains the main end market for the North American lime industry (30%) with $559m sales in 2010, followed by FGD, construction, water treatment, mining, precipitated calcium carbonate (PCC), and pulp and paper (see US lime consumption by end markets in 2010, right).

In steel refining, quicklime is used as a flux to remove impurities, such as phosphorus, silica, and sulphur.

Uncertainties are anticipated to continue for the global steel industry, although 2011 was described as a ‘solid year’, in a report issued by the World Steel Association in its Short Range Outlook for 2012 and 2013 at the end of April 2012.

World steel demand grew by 5.6% in 2011, with 3.6% growth forecast for 2012 and 4.5% for 2013.

While steel demand is expected to stall in Europe and Japan, US steel consumption could grow by 5.7% in 2012 and 5.6% in 2013, bringing it up to 99.5m tonnes - 92% of its pre-recession levels of 2007.

According to the World Steel Association’s latest monthly report released on 20 June, the US produced 7.7m tonnes crude steel in May 2012, up by 7.4% on May 2011.

For the North American Free Trade Agreement (NAFTA) region as a whole, apparent steel use will increase by 5.2% and 5.1% in 2012 and 2013 respectively.

During the past few decades, changing technology, economics, and environmental regulations have also played large roles in some lime markets. As the USGS pointed out, steel is the best example of where a change in technology - the replacement of open-hearth furnaces with basic oxygen furnaces - resulted in a dramatic change in the quantity and kinds of lime used.

FGD, the capture of sulphur dioxide emission, is one of the main end markets expected to see significant growth in the future.

In FGD systems serving coal-fired power plants, incinerators and industrial plants, lime is injected into the flue gas to remove acidic gases, particularly sulphur dioxide (SO2) and hydrochloric acid (HCl).

It can also be used to stabilise the resulting sludge before disposal. Many FGD systems at utility power plants are now designed to produce gypsum as a by-product from the SO2 emissions.

This by-product material is suitable for use in manufacturing gypsum wallboard, as an additive in Portland cement, and as a soil amendment in agriculture.

The FGD market, which essentially did not exist before the enactment of the Clean Air Act Amendments in 1970, became significant for the lime industry as the passage of this legislation and successive amendments were made. It now accounts for some 21% of lime consumption in the US.

“FGD is a steady market in power plants, which has been growing significantly during the past few years. It could become as important as steel at some point for the lime industry,” a US lime producer told IM.

Prices

“Lime prices remain surprisingly strong,” Miller told IM, reporting a 4% increase in 2011.

According to Miller, lime prices actually recorded their largest single-year increase during 2009 - the worst year of the recession - when overall lime prices increased by about 14%.

A note of warning comes from Reinhardt from the Lime Association of Texas, however, who pointed out to IM that prices remain “very dependent on fuel cost for production and transportation”.

A source from the North American industry confirmed to IM that prices have risen, driven by increasing production and freight costs to transport the products from the facilities. “As a result, we see a lot of pressure on our margin prices,” he said.

The industry has not seen any decrease in the average price for all types of lime since 1998. However, beginning in 2004, the industry “started pushing through rather large price increases, at least compared with historical lime price changes” said Michael Miller, USGS lime specialist.

According to the USGS, lime prices tend to fluctuate by only very small amounts, usually less than $1/tonne, with the exception of the 1970s , when a number of energy crises saw more extreme changes.

Lime prices stabilised in 2010 after moderate annual increases in preceding years and the large increase recorded in 2009. The average value for all types of lime sold increased slightly to $104.3/tonne, with the average value for high-calcium quicklime sold rising by $2.4/tonne to $100.6/tonne.

Reflecting increased supplies in the Midwest from plants that were idle for all or part of 2009, the average value for dolomitic quicklime sold decreased by nearly 7% to $104.3/tonne. The average value of high-calcium hydrate decreased slightly, while the average value of dolomitic hydrate showed a small increase.

Although it is difficult to make any predictions in the current economic climate, lime prices are expected to increase, driven by production costs, but also by an anticipated growth in demand.

The forecast growth in the steel industry in 2012 and 201, is likely to maintain healthy prices, while the predicted development of the FGD market is forecast to boost prices in the longer term, as the industry responds to more and more demanding environmental legislations.

“Environmental regulations have become stricter in recent years and there are added burdens to collect and report greenhouse gas emissions to the Environmental Protection Agency,” Miller said.

Reinhardt also believes that “competitiveness with other products, such as cement, emulsion, and geogrid (a geosynthetic material used to reinforce soils and similar materials), will likely continue for some time”.

Outlook

The positive outlook for steel in 2012 and 2013 is expected to see the North American lime industry maintaining a healthy market during those years.

However, the general slowdown of the global economy, notably affected by the European debt crisis, brings addition uncertainties, making it difficult to predict how the market will behave.

“We have no visibility about what is going to happen in a just few months from here. It makes it difficult to anticipate what direction the market could take,” a source from the industry told IM.

Carmeuse believes that “risks to the global growth outlook remain high, despite signs of a potential rebound in the US economy”.

“More pronounced contagion from the sovereign-debt crisis in the euro area to the rest of the global economy, and stronger spillovers between the financial sector and industries, remain the largest downside risk,” Carmeuse said in its Q1 financial results.

“If the Federal Government does not come up with a transportation bill soon and the economy does not pick up pace, the market for lime will continue to be very challenging,” Reinhardt told IM.

Flue gas desulphurisation could bring further growth to the lime industry as environmental regulations have become stricter in recent years in the US.

FGD accounted for nearly 21% of the lime market in 2011 through the use of lime to remove sulphur from primarily coal-fired power plants and industrial boilers, or through the use of hydrated lime to treat acid gases resulting from oxides of nitrogen (NOx) removal by selective catalytic reduction.

An additional factor is highlighted by Miller.

“Something interesting to consider is the effect of the sudden abundance of and low prices for natural gas and major shift by utility companies from burning coal to burning natural gas,” he said.

According to a recent report in the US, coal usage could be expected to dip below 40% in 2012 and under 30% by 2020. If this was to happen, it would impact both FGD and the ancillary markets such as the treatment of acid gases.

As natural gas contains only trace amounts of impurities, the conversion of power plants from coal to natural gas would wipe out segments of this market.

In addition, the coal-fired utilities received another hit when the US Environmental Protection Agency (EPA) issued new environmental rules that tighten emission limits on SO2, NOx, and mercury.

According to a survey by the Associated Press released in December 2011, these new rules alone could result in the closure of from 32 to as many as 68 of the most polluting coal-fired power plants in a dozen states in the US.