Economic recovery beckons for fused alumina market

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Published: Friday, 22 February 2013

As with many sectors, fused alumina, both white- and brown-fused, is beginning to show signs of recovery for uses in refectories and in abrasives. Ted Dickson* looks at the current state of play and where the market may go if the global economy begins to pick up.

It is important to take great care when citing production capacity for fused alumina as it can be very difficult to get accurate figures for production. Many companies will not reveal their actual production data and will sometimes only indicate their total fusion capacity, which can be used to produce a range of products other than fused alumina, and either brown fused alumina (BFA) or white fused alumina (WFA) can be produced in the same furnaces.

The largest volume fused material is commonly BFA and production levels, even during the recession, may have been as high as 1-1.2m tpa. Current world production of BFA is estimated to be 1.9-2.0 tpa, of which some 1.5m tpa is in China and represents a significant recovery from levels seen in the depths of the recession.

Current global production of WFA is estimated at 450-500,000 tpa, well below the peaks of about 550,000 tpa. However, production is on an upward trend and there has been considerable volumes of WFA coming out of China more recently, an unusual situation as China has traditionally been a modest WFA producer in past years.

Around 60% of produced BFA is used in the refractories industry, with most of the remainder being used in abrasives, while there is a more even split for WFA. China is the largest producer of BFA, with Europe, in its broadest sense and including Russia, being the largest producing region for WFA by far. Many fusing plants can produce either WFA or BFA, as well as a number of other fused products.

While capacity figures can be misleading because of the possibility of fusing a range of different products in a plant, it is estimated that total effective capacity for BFA is 2.3m tpa. Although much higher figures are often quoted, these may include capacity from older, inefficient small plants that may never be able to produce effectively. Additionally, there may be a capability for fusing around 600,000 tpa of WFA, but this may include operations fusing alumina zirconia mullite and other products.

China

China has by far the largest fused alumina capacity estimated at about 1.6-1.7m tpa in terms of effective capacity, the vast majority of it BFA, based on local bauxite, and representing more than 70% of world capacity, although production of WFA is now understood to be considerablyÊhigher than the 40,000 tpa of recent years. WFA output has traditionally been variable as production is relatively small and purchases of alumina feedstock are often on a spot basis. If spot prices are high - and they have hit more than $600/tonne in recent years - but have been as low as $170/tonne, it is often unfeasible to produce WFA economically.

There are only about ten Chinese BFA producers with capacity of more than 50,000 tpa. However, that only represents about 40% of total capacity and there are numerous small plants, some with capacity to produce only a few thousand tonnes. Rationalisation of the industry is expected, with many of the smaller plants being absorbed by larger producers or simply closed down. Energy shortages may force the closure of some of the smaller and least-efficient plants in the short term. However, China is expected to remain the dominant supplier of BFA for the foreseeable future because of the local supply of calcined bauxite. Bosai Group is by far the largest single producer having acquired Guizhou Kaifeng Mining China. It recently announced it is adding four new kilns dedicated to production of abrasive grits to FEPA, ANSI and ISO standards that will bring its capacity up to a total of 235,000 tpa from four plants.

Rest of the world

Outside of China, the largest producers are Treibacher, with nine plants in a number of countries for both BFA and WFA, Washington Mills with plants in Canada and the US, Elfusa in Brazil, and Saint Gobain with plants in several regions. While there has been little change in the capacity of these producers in recent years, current output in not at capacity. However, Treibacher has announced that it is to build a new fusing plant in Bahrain.

Issues and trends

Raw materials

In recent years, there has been a significant issue regarding the availability and quality of abrasive-grade calcined bauxite for making BFA as discussed in more detail by Alison Saxby (see p41-46). This is even the case for Chinese producers, who have to compete with the ever- growing demands of the domestic metallurgical alumina industry for raw materials. Such is this competition, there have even been instances where companies have positioned staff with signs at the side of roads leading to alumina refineries offering premiums for truckloads of bauxite destined for the refinery if they have low iron. There is also the potential for additional competition for bauxite resources from the proppants sector, with large increases in bauxite-based proppant manufacture in China and elsewhere, although the specifications for that material tends to be lower than those for either abrasive-grade or refractory-grade bauxites (See p16).

A few companies, such as Bosai, ChenQian and CMP, have integrated bauxite mining and calcining operations largely dedicated to non-metallurgical use, and many of the small operations that had concentrated on mining non-metallurgical grades of bauxite have either closed or been merged into larger operations, mainly concerned with supplying the local alumina industry.

Bosai is further integrated as the largest producer of BFA in China. The cost of the raw bauxite has subsequently increased, at least for those without in-house sources of bauxite. There have also been questions regarding the quality of the bauxite, with indications that there has been a slow reduction in the quality of grades used. This had become quite pronounced before the recession, when there was high demand for all grades of calcined bauxite as well as the constant pressure on supply from the metallurgical alumina industry. During the recession, the quality variation has been less as the demand fell, particularly for exported material. However, there may be further problems with future supply once demand levels throughout the world recover.

There are few alternative sources of abrasive-grade calcined bauxite. There is considerable supply in Brazil, through Mineracao Curimbaba (see pp 56-59), but much of it is used in-house for the production of proppants for the oil and gas industry or by its sister company, Elfusa, for the production of BFA, and there are other producers in Brazil, as outlined by Alison Saxby (see p43-49). This could potentially include Imerys, which bought the MSL Minerais reserves in 2012. There are also supplies out of Guyana, where Bosai is currently the sole calcined bauxite producer, although the operations in Guyana tend to concentrate on higher-value added refractory grades. First Bauxite’s proposed new operation in Guyana will add to capacity there, but again is aimed primarily at the refractories market.

There is also considerable production capacity in India by Ashapura, Orient Abrasives Limited, Carborundum Universal Ltd, Saurashtra Calcined Bauxite & Allied Industries and Gujarat Mineral Development Corp. (GMDC), although it is understood that the GMDC calciner is not currently operating due to a lack of suitable ore. Most of this would be regarded as abrasive grades, but it is also sold to the local refractories industry. There are developments in Russia that should add to calcining capacity, but at least some of this is aimed at proppants markets and they are also looking at refractories markets. It is not thought that export markets will be targeted, at least for the calcined bauxite, although there may well be exports of products derived from these.



Supply and exports

While there does not seem to be any critical shortages in the supply of calcined bauxite raw material for BFA in the current market conditions, there could well be shortages once there is a more robust recovery in the world economy. Chinese supply has been restricted through export controls, but actual exports have been falling below the export quotas due to low demand. The export quotas are being replaced with a different system, but it looks unlikely that the availability of calcined bauxite for export markets will be able to increase rapidly once the economy picks up, given the competition for material from the metallurgical alumina industry. Increased local consumption in BFA, proppants and refractories may well mean that export quantities will be restricted because of availability, rather than by export controls. It may also mean increased costs for local producers, which will eventually feed through to BFA prices. Exports of all grades of calcined bauxite (and the category also includes calcined clays) fell from 650,000 tonnes in 2011 to 611,000 tonnes in 2012.



New projects

It can take many years to develop a new project and there are few indications of any large-scale new projects that could serve the abrasive- grade markets once the economy recovers and demand increases. There have been many large projects for the development of metallurgical- grade bauxites, but not for calcined abrasive grades. Guinea was at one time a major source of abrasive-grade bauxites, but has not supplied for many years. While there are probably suitable bauxites among the huge developments proposed, there is no indication that any calcining capacity will be included in these projects. The Weipa bauxite operation in Australia used to supply calcined abrasive-grade bauxite, but was closed some years ago at a time when Rio Tinto was expanding its metallurgical bauxite output. Given that the calciner was one of the major sources of carbon emissions at the plant and controversial carbon taxes have been introduced in Australia, it seems unlikely that there will be any incentive to initiate a new project for abrasive-grade production.

For WFA, the supply situation for raw materials is much less of a problem. The raw material is calcined alumina from Bayer alumina plants, although often a lower soda specification than for metallurgical grades is required or preferred. In the current market, there is a more-than- adequate supply of this material. All new plants and many of the older Bayer alumina plants are now fitted with fluidised bed calciners that have lower calcination temperatures and much shorter residence times than the rotary kilns traditionally used. As a result, the product is not calcined as hard, but it can still be used as a raw material in fusing plants, as long as the soda content is low enough.

Trends and prices

Before the recession, there were large increases in some prices, with spot prices rising to more than $600/tonne. Alumina producers are moving away from tying prices to the London Metal Exchange prices, and most have moved to a link to indices published by Platts, Metal Bulletin or CRU. Prices are currently around $335/tonne and look to remain fairly stable, although small volume sales of low soda grades will be a slightly higher.

The outlook is that there will be no shortages of production through to 2017, with projects in the pipeline and projected demand to metallurgical grades of alumina. Chinese WFA producers do face higher prices for their alumina raw materials, with prices of more than $400/tonne locally. Traditionally, Chinese WFA producers were relatively small and bought on the spot market, which could be very volatile due to even small differences in supply and demand, falling well below contract prices when there was excess supply and soaring when there were shortages.

Industry drivers

As mentioned earlier, the main uses for fused aluminas are in refractories and abrasives, with about 60% of BFA used in refractories and 40% in abrasives, and an approximate 50:50 split for WFA. The prime driver in the refractories sector is production of crude steel. About 70% of all refractories are used in the steel industry and possibly a higher proportion of the fused aluminas.

While the fundamental drivers of the refractories industry, particularly steel, have not changed and in the long term will be the main influence on the consumption of refractories, the global financial situation is still having a negative effect on an industry yet to recover from the effects of the recession. In most cases, production and consumption of refractories is still not back to levels seen before the recession, although the peak levels were probably at a time when the economy was overheating.

With both steel and cement output down in many areas and lower reported refractories sales by some of the larger refractories manufacturers in 2012, total world production of refractories is expected to have declined. While steel production and cement production in China may have grown in 2012, continuing improvements in refractory practice, reducing unit consumption from what, in world terms, is a high level, is likely to have resulted in flat production, with local demand staying stable and possibly a reduction in the approximate 2m tpa of exports.

Production of refractories in North America is likely to have risen because of reasonable growth in steel and cement production, although a note of caution here is that demand was strong in the first half of the year with growing steel production, but weaker in the second half. However, it is expected that production of refractories elsewhere will have declined because of reduced demand, particularly in Europe. There is expected to have been reductions in the former CIS, Latin America and Japan, although there perhaps a few bright spots, with more than 5% growth in the Turkish steel industry and more than 4% growth in India.

The outlook for 2013 is still uncertain. Many observers expect that the industry will start to improve in the second half of 2013, although there is a perception that this is hope and belief, rather than a strong conviction, and further financial crises can still not be ruled out. Steel production is predicted to rise again in 2013, again driven by China. Steel production is also expected to recover in the EU as well as some other countries that saw falls in 2012, but, as a whole, it is predicted that steel production outside of China may fall again in 2013. Any recovery is expected to be seen in the second half of 2013, and there will be stronger growth in 2014 and 2015 as this recovery gathers pace.

The abrasives industry is also, in a way, related to the steel industry, with the main drivers including automobiles, aerospace, durable goods production and construction, all of which have an influence on the demand for steel - although aerospace is more for non-ferrous metals. All of these sectors have suffered during the recession (see pp 56- 59). Automobile production had been recovering through to 2011 from low levels in the recession, but this was boosted in some countries by scrappage schemes, which have now expired.

There is still uncertainty about a sustained industrial recovery, with strong recoveries seen in some markets such as the US in 2011 and into 2012 tempered by generally weak markets in much of Europe. Emerging markets, such as in China and India, will have a greater influence on longer-term demand, with China already the world’s largest producer of automobiles and expected to become a significant exporter in the future.

The aerospace industry is a major consumer of abrasive products and there is continuing optimism in an area that has been growing with significant increases in production and orders, including a new generation of large aircraft in the commercial sector. There has to be some caution here, however, as the military sector is suffering because of defence cutbacks in many countries introduced to help balance budgets.

Construction markets are showing some signs of improvement in the US and certain European countries, but are still well below peak levels and the recovery from the recession is expected to be slow, with restricted finance available and in many cases still an overhang of excess properties.

Little stock is being held in the industry, either of raw materials or finished products. Orders tend to be short term, and that has not changed since the recession when many were caught with high stocks and acerbated the situation by running down inventories. Orders for raw materials, such as fused alumina for refractories and abrasives, are frequently being made only two-to-three months ahead, as opposed to planned purchases of perhaps a year being negotiated prior to the recession.

With industry still operating at below capacity in many areas, there is the capability of supplying orders on a short-term basis, but should there be a strong recovery in the economy, there may well be shortages for a period before a balance is reached. The problem is still uncertainty and the fear of being caught by further crises.

Competitive trends

China has for long been the dominant producer of BFA, with an estimated 1.5m tonnes of production in 2012 out of a world total of around 1.9-2m tpa. It has not been seen as a significant source of WFA as it has not had the competitive advantage of being the major world producer of the raw material, calcined bauxite in the case of BFA. The raw material for WFA, in contrast, is readily available in many parts of the world without having to face export taxes and, in the past, licence fees that were imposed on exports of calcined bauxite - fees that were not imposed on local producers of BFA. In reality, feedstock alumina prices for WFA in China are probably higher than in many other parts of the world. However, low-cost WFA is now being exported from China at very competitive prices compared with other world sources, with some observers noting that WFA prices being offered out of China are getting close to prices for BFA in international markets.

Current prices for BFA out of China are $660-750/tonne for refractory grades and $800-840/tonne for FEPA F8-220 grit. Prices for BFA in the US have been reported at about $890-915/tonne for a refractory grade. Ex-works prices in China have been reported at about $610-630/tonne, although it should be remembered that there is a 15% export tax, which was introduced to discourage exports in 2008.

In the case of WFA, Chinese FOB prices are less commonly quoted as the country is not traditionally a large source of the material. However, price indications of $1,000/tonne FOB China have been given for refractory grades about 1mm size. There have been reports of ex-works prices in China of $820-840/tonne for refractory-sized grades and even lower prices being offered to traders for cash settlement as most consumers in China tend to delay payments for a long time.

Prices for FEPA grades of WFA in Europe are currently quoted at €850-890/tonne, currently equivalent to about $1,140-1,200/tonne in 25 kg bags. Low-cost WFA out of China is likely to put some pressure on prices in the EU and North America, although some consumers are wary of longer-term supply out of China, which has been variable in quantity and quality in the past, and in and out of the market if raw material prices rise. However, prices now seem to be stabilising, at least in the short term.

BFA producers with excess capacity in China or an inability to obtain sufficient or suitable grades of calcined bauxite for BFA, may have shifted production to WFA as calcined alumina may be more readily available, currently at reasonable prices. Even metallurgical alumina producers may be getting involved in the sector, especially when producing at under capacity and at times when they may have electricity supplies available greater than their current needs.

Quality declining

There have been some concerns about a slow decline in the quality of some BFA products out of China. This involves lower alumina content and higher silica, carbon and sulphur content, some of which may be related to variable raw material supplies, especially for those companies without their own production of bauxite, and, in some cases, higher sulphur fuel being used in the calcination of the bauxite.

Although the changes are not universal and seem relatively modest, some manufacturers of vitrified abrasive wheels have reported problems with cracking and wheel breakage. As a result, some consumers are willing to pay a premium to guarantee quality raw material deliveries.

Another competitive issue involves the choice between tabular alumina and WFA in refractory applications. There has been a tendency in Europe to use greater amounts of tabular alumina in refractories with WFA generally being of a higher cost and some consumers preferring tabular alumina for technical reasons. However, in the US, companies seem willing to switch between fused and tabular more readily based on price, and the differential between fused and tabular in the US tends to be less than in Europe. The relative level of the exchange rate between the dollar and the euro is also a factor here.

There is expected to be increased use of fused or tabular alumina above the general growth rates in refractories. This is due to higher-quality refractories being used to achieve longer campaign lifespans, cleaner steels, or to counteract the adverse effects of alternative fuels in cement production. The use of spinel refractories, formed using high-quality alumina and magnesia either pre-fired or fired in-situ, in steel ladles or cement kiln burning zones, is expected to grow.

Trade

China is by far the largest exporter of fused alumina as shown in figure 1 and the trade data table. The drastic effects of the recession are very evident from this data, and while there was a rapid recovery in 2010, this slowed considerably in 2011 and did not fully recover to pre-recession levels. As always, trade data must be regarded with some caution. The category is defined as artificial corundum, which will include both BFA and WFA, but other materials can get mis-classified, including tabular alumina or even calcined alumina. Still, the general trends can be indicated from these figures.

The second-largest exporter is Germany with just 51,000 tonnes in 2011 compared with more than 800,000 tonnes from China. It is expected that exports from China will have grown again in 2012, but may well level off or even decline in the first half of 2013. However, once the recovery in world economies gathers pace, it may be that Chinese export growth will be modest or stable and other sources of fused alumina will need to be developed outside of China in the longer term. If calcined bauxite is not available, that may mean a shift to alternatives to BFA, possibly including WFA, despite its higher price.

Contributor:
Ted Dickson, TAK Industrial Mineral Consultancy

Ted Dickson has been an independent consultant specialising in minerals markets for more than 20 years operating as TAK Industrial Mineral Consultancy. Prior to that had spent 12 years on the Industrial Minerals’ editorial team. At the end of February he published a multi-client study on the world refractories industry (through Materials Technology Publications) including a chapter covering fused alumina. He is based in Buckinghamshire, UK.