Refractory minerals- back in the black?

By Jessica Roberts
Published: Tuesday, 27 August 2013

As supply of refractory minerals from China continues to tighten, should consumers be concerned about raw material availability? Jessica Roberts* investigates the case for several key minerals: alumina, bauxite, graphite and magnesia.

Over the course of several decades, China has emerged as a leading producer of numerous minerals and commodities. From a relatively low production base in the 1970s, China’s dominance in the global raw materials sector was established in the 1980s and cemented into the 1990s.

During this period, Chinese mineral exporters supplied relatively low-grade and low-priced material, which was steadily accepted into western mineral markets. In the case of many industrial minerals and metals - including refractory raw materials - the influx of Chinese material saw established producers outside the country unable to compete on price. Often this led to their closure, sale, or diversification into non-refractory grades.

At the beginning of the 2000s and into the middle of the decade, China’s open-door policy saw something of a reversal. Mineral production and exports began to be affected by rising costs, including, but not limited to, energy, processing and freight. During this period, the Chinese government also tightened export requirements in order to encourage domestic consumption of raw materials in favour of export of value-added goods. Such policies included lower export quotas, higher export taxes and licence fees, and the abolition of export tax rebates on a range of exported minerals.

This change in export trends is demonstrated by the fall in export volumes of several key refractory minerals - namely alumina, bauxite, graphite and magnesia - during the latter part of this period.

Between 1995 and 2012, exports of refractory grades of magnesia (dead burned and fused) fell from 1.7m tonnes to just over 1m tonnes. Refractory bauxite exports also saw significant falls in volume, from 1.2m tonnes in 1995 to 0.6m tonnes in 2012. While exports of natural graphite and fused alumina (synthetic corundum) showed strong volume growth up until 2007, they too have steadily fallen during the past five years (Figure 1).

This trend partly precipitated a complaint by Europe, Mexico and the US to the World Trade Organization (WTO) regarding China’s exports of several key steelmaking raw materials. The complaint was filed in June 2009 and, following several reviews, the WTO dismissed the bulk of China’s appeals in a ruling in January 2012. The ruling led China to lift export quotas from some of these key minerals, including refractory-grade bauxite and fluorspar, but quotas for magnesia remain.



Policy at home

China now accounts for between 56% and 85% of total production of refractory grades of alumina, bauxite, magnesia and natural graphite. The country produced 56% of refractory alumina (calcined, tabular, and white fused) in 2011. In addition, Chinese producers accounted for 85% of the world’s refractory bauxite (calcined and brown fused); 69% of natural graphite output; and 61% of dead burned and fused magnesia (Figure 2).

The Chinese government’s policy at home has been as strict as its stance on the international market. Export restrictions have gone hand-in-hand with tightening regulations for domestic mineral producers. A key concern of the government is conservation of the country’s mineral resources, in addition to environmental protection and a stronger focus on health and safety.

Chinese output of non-metallurgical bauxite was severely reduced in 2008 when the government took steps to eradicate illegal mining in Shanxi province, one of the key regions for non-met bauxite production accounting for 60-70% of exports. In the Xiaoyi area, all underground mining was banned until 2010. Major export supply issues were predicted, but did not materialise, owing to lower demand caused by the global economic downturn.

Another key development affecting bauxite and magnesia in particular has been the move away from coal-fired shaft kilns in favour of rotary kilns. The coal-fired round and shaft kilns became illegal in 2005, and in 2006 the government began an enforced closure programme accelerating the move towards rotary kiln production.

The investment required precluded many smaller participants from the industry, leaving only major players. In the case of calcined bauxite, this enforced consolidation left just four main producers in Shanxi. The number of bauxite producers in China 10 years ago was more than 50, with at least half of these producing under 2,000 tpa. Today, the total number of producers is now 15-20.

In its 12th Five-Year plan for the period between 2011 and 2015, the Chinese government announced several policies with similar implications for magnesia. Existing magnesia operations must have the potential to be scaled up to 1.5m tpa production capacity, while large and medium-sized enterprises are encouraged to acquire and consolidate small operations. On the technology front, calcining operations with rotary kilns must have systems to utilise waste heat, and shaft kilns must be gas-fired. Crucially, the plan states that production capacity of ‘old technology’ must be reduced to 1,000 kilns by 2015, comprising 500 CCM, 300 FM and 200 DBM kilns. This is thought to be a push to eliminate overcapacity, which currently stands at around 5m tpa for refractory magnesia.

Graphite has also been on the government’s radar. In September 2010, the government closed all amorphous graphite mines in the Lutang area of Chenzhou, Hunan province - the main source of amorphous graphite in China. The closures were the beginning of an extensive programme that aimed to consolidate 210 small mines into 20 large mines under the control of state-owned company, South Graphite.

The government also invested in downstream processing capacity of value-added products to increase the value of Chinese graphite exports, establishing a new processing facility for South Graphite in Lutang. The programme affected amorphous graphite supply to the 40 existing processors in Chenzhou, leading to closures or the relocation of businesses to Fujian. By mid-2012, the price of amorphous graphite in the region had doubled.

There are similar consolidation programmes being discussed for China’s flake graphite industry; should a similar restructure occur, exports of raw flake graphite could become more restricted. Exports have already started to reflect the government’s influence, recording a 62% fall between 2007 and 2012 from 670,000 tonnes to 258,000 tonnes of natural graphite.



Domestic demand

Much of China’s production of refractory feedstocks is destined for use in the refractories industry. Chinese refractories production during the past decade grew at a rate of 9.1% per annum to reach 28.2m tonnes in 2012. Furthermore, the majority of this output was for domestic use, with exports totalling only 7% of production.

The main consumer of refractories is the Chinese iron and crude steel industry, although the country also hosts significant production of lime and cement, ceramics, glass and non-ferrous metals. As with its refractories production, China’s output of crude steel has seen tremendous growth in the past decade; growing from 182.3m tonnes in 2002 to reach 716.5m tonnes in 2012. This represents a compound average growth rate of 14.7% per annum between 2002 and 2012.

Growth in refractories output has not kept pace with that of steel, because specific consumption of refractories per tonne of steel produced has fallen. It is estimated that, in 2000, Chinese producers on average used 30kg of refractories per tonne of steel. Consumption is now probably below 20kg refractories per tonne of steel, and this use will continue to fall as production technologies improve.

Although specific use of refractories is declining, China’s refractories production will continue to grow in the short- to medium-term - in line with crude steel, ceramics, cement, glass and other consuming industries. Roskill forecasts that between 2013 and 2017, global crude steel production will grow by 3.5% per annum to reach 1,846m tonnes. Growth is forecast to be highest in the Middle East, at a rate of 4.4% per annum, although starting from a small production base.

Asian crude steel output is the largest in the world and is forecast to grow by 4.2% per annum to reach 1,256m tonnes in 2017. China is predicted to grow at a slightly higher rate of 4.3% per annum to reach 897m tonnes. This growth will correspondingly drive demand for basic refractories. Based on these growth rates, consumption of the refractory raw materials discussed above is forecast to increase by just under 3% per annum to 2017, the exact figure depending on the mineral. It has been suggested by some market commentators that this kind of demand could outstrip minerals supply. But this outcome is dependent on several factors, including the supply and demand balance in the rest of the world.



Sources outside China

The steady withdrawal of Chinese raw materials from international trade has been clear for several years, not only of refractory minerals, but for other key minerals and metals in which China dominates production, such as fluorspar, antimony and rare earths. International consumers that depend on Chinese exports have questioned the security of their supply chain. Many have sought supplies in the rest of the world, or looked into the viability of substitution - such as replacement of bauxite with andalusite.

Some have even made moves to integrate their own raw materials. Much of this has been based on expanding or acquiring existing mineral operations. In terms of refractory minerals, key projects and expansions include Magnesita Refrat‡rios of Brazil (graphite, magnesia), Magnezit Group of Russia (magnesia) and RHI AG of Austria (magnesia).

The long-term trend of reduced supply and higher prices from China has also encouraged the development of greenfield refractory mineral projects in the rest of the world. Projects such as First Bauxite in Guyana (refractory-grade bauxite), PT Antam in Indonesia (calcined alumina), Focus Graphite in Canada, and J&K Mineral Development in India (DBM) look to bring new sources of mineral supply online.

Outside China, almost 1m tpa of refractory magnesia (DBM/FM) capacity was outlined for development between 2011 and 2015. As of mid-2013, at least 500,000 tpa of this had been brought into production, much of it from the three refractory groups already mentioned.

Potential new graphite supplies are being developed globally, notably in Canada where around 50 exploration projects are underway. Meanwhile, Australia, Brazil, Sweden, the US and parts of Africa have also emerged as areas of interest for development. The vast majority of new projects were still at the early exploration stage in mid-2013, but have the potential to increase global flake graphite capacity by more than 200,000 tpa by 2016.

Arguably, the refractory mineral most at risk of sudden Chinese supply shortages is calcined bauxite, the total output of which is 85%-controlled by China. This does not include the refractory bauxite operation in Guyana, which is owned by Bosai Minerals Group of Chongqing, China.

Bauxite has been the focus of several development projects, the most advanced of which is UC Rusal’s Timan Bauxite subsidiary in Komi, Russia. The company began initial production of refractory bauxite in 2012, with an output of 90,000 tonnes. Rusal expects to reach full production of 250,000 tpa in 2013. However, it is understood that refractory bauxite from Timan will be mainly for domestic consumption. Material for export markets is being developed in Guyana by Canadian company, First Bauxite. The company owns the Bonasika sintered bauxite project, from which it plans to produce 100,000 tpa beginning in 2014.

Another potential new source is in Brazil from the former MSL refractory bauxite deposit of Vale, which was acquired by Imerys of France at the end of 2012. MSL previously had the capacity to produce some 150,000 tpa of refractory bauxite.

Should all projects come to fruition and at full capacity, up to 500,000 tpa of additional refractory-grade bauxite could be produced; potentially half of this for export markets, equivalent to a third of the total trade in 2012.

Supply in the black?

Given the number of new projects that have come online or are in the late stages of development, should refractories producers be concerned about raw material availability?

In the case of refractory magnesia, there is around 5m tpa of excess capacity in China alone. Efforts are being made to reduce some of this through the removal of old or outdated technology. But a significant portion could be utilised should market conditions warrant this. Up to 500,000 tpa of additional capacity has come on stream outside China in the past two years, plus the additional 500,000 tpa of capacity under development, suggesting that the magnesia market will be adequately supplied in the medium term. A case could be made for the market heading into oversupply, particularly for certain grades, such as FM. However, this situation has existed for a while, particularly for FM, as capacity remains under-utilised.

Future graphite availability is largely subject to the domestic consolidation programmes of the Chinese government. If the current industry structure is maintained, no supply issues are expected - particularly given the number of projects currently under development in the rest of the world.

The mineral perhaps at greatest risk of supply disruption is refractory bauxite. Around 85% of production occurs in China and so is particularly vulnerable to changes in government policy. In addition, supply is not fully market-driven towards the refractory sector. Both refractory-grade calcined bauxite and abrasive-grade calcined bauxite face supply insecurity owing to the insatiable appetite of China’s smelter alumina requirements for aluminium production.

Yet in recent years, BFA capacity utilisation has frequently been below 50% due to factors such as low demand and energy access/prices. In addition, projects under development could be sufficient to meet the increase in demand forecast through to 2017.

This article is based on a paper, ‘Refractory raw materials supply - is there cause for concern?’ presented by Roskill at the 56th International Colloquium on Refractories, 25-26 September 2013, Aachen, Germany.

*Jessica Roberts, Senior Analyst, Roskill Information Services

References

[1] Bauxite & Alumina: Global Industry Markets and Outlook, 8th edition, 2012. Roskill Information Services, London.

[2] Natural & Synthetic Graphite: Global Industry Markets and Outlook, 8th edition, 2012. Roskill Information Services, London.

[3] Magnesium Compounds & Chemicals: Global Industry Markets and Outlook, 12th edition, 2013. Roskill Information Services, London.