Magnesia consumption is linked to a handful of
generally steady end markets. As a key refractory mineral, its
usage is correlated to steel and cement manufacturing, while as
an ingredient in markets ranging from flame retardants and
water treatment to human medicine and animal feed, small but
stable annual demand volumes keep the industry ticking
Despite resting on well-established core markets,
companies producing magnesia face challenges – not
least in boosting margins, when their principal customer, the
steel industry, is experiencing flat demand.
According to the World Steel Association
(worldsteel), the non-profit industry body that tracks global
steel output, world steel production grew by just 1.14% to
1.64bn tonnes between 2013 and 2014, compared with a global GDP
growth of 3.89%. Against even recent historical growth
statistics, GDP has slowed down markedly. The steel capacity
that was built up to keep pace with more strident economic
demand (between 2010 and 2011, GDP growth was still as high as
10.7%) is in many cases now surplus to requirement.
With steel production decelerating overall,
magnesia producers like Brazil’s Magnesita
Refratarios are looking to growth areas that still exist within
this end market.
For Magnesita, areas of steelmaking that are
still expanding their need for magnesia are stainless steel and
mini mills in North America.
Other magnesia companies, like Canada-based
junior, MGX Minerals, are throwing in their lots with
non-metallic industries, such as the fertiliser and wall board
Careful currency arbitrage and expansion in the
services segments of their businesses also enabled the sales of
some of the world’s magnesia producers to
outperform steel industry production in 2014. But the question
is remains, how long can magnesia producers dodge the steel
Global magnesite resources are estimated
to be 12bn tonnes, but reserves in actively
producing countries are just 2.4bn tonnes.
James St. John
Magnesia’s various forms, from crude
magnesite, to deadburned (DBM), fused (FM) and caustic calcined
magnesia (CCM), magnesium hydroxide (MDH), magnesium chloride
and synthetic magnesium sulphate, all feed into different
The principal driver for DBM and FM is the
refractories industry, which is linked with steel and other
metal production, as well as cement and glass.
However, although refractories are by far the
single largest consuming segment for magnesia, this industry
does not currently account for the majority of magnesium
compound consumption in key markets like the US. According to
the US Geological Survey (USGS), around 48% of the magnesium
compounds consumed in the US in 2014 were used for
refractories. The remaining 52% was used in agricultural,
chemical, construction, environmental and industrial
Magnesia, fused, 98% MgO, lump, FOB
Even prices for high grade FM, which is
gaining preference in refractories applications
to its superior quality and performance
characteristics, have fallen in the last year in line
weaker demand and overcapacity.
Source: IM Prices Database
Since 2013, refractories have accounted for less
than 50% of magnesium compounds consumed in the US. Although
steel production in the US increased by 1.9% to 121.2m tonnes
between 2013 and 2014, the use of higher quality FM-based
refractories resulted in decreased refractory consumption per
tonne of steel produced. This trend looks set to continue and
become more pronounced as demands on steel quality increase and
the technology used to make the steel improves.
Increased consumption of magnesium compounds for
animal feed supplements, deicing, dust control, fertiliser,
flue gas treatment and waste water treatment are also
contributing to the shift in end use distribution.
Consumption of magnesium compounds in the US was
570,000 tonnes in 2014, compared with 506,000 tonnes in 2013;
485,000 tonnes in 2012; and 602,000 tonnes in 2011; according
to the USGS.
DBM was being replaced with FM in some steel
furnaces in 2014, the USGS said. This is because FM has
superior properties to DBM in some refractory applications,
owing to higher magnesia content, higher density and larger
crystal size. Meanwhile, alumina, chromite and silica
substitute for magnesia in some refractory applications.
USGS figures show that global consumption of all
refractories was 10% lower in 2013 than in 2012, while magnesia
brick consumption in China in 2013 was 16% lower than in 2012.
Slower economic growth in China and the production of higher
quality refractories and more advanced manufacturing techniques
also decreased magnesia consumption.
Slowing GDP growth in China has been accepted as
a challenge by the magnesia industry. Between 2012 and 2013,
China’s GDP grew 12.3%, down from 12.4% between
2011 and 2012. These figures were significantly weaker than the
expansion rates of 23.4% seen between 2011 and 2012 and 18.8%
between 2010 and 2011.
The Chinese government has announced a growth
target of around 7% for 2015 – the lowest increase in
GDP since 1990.
Slowing economic growth has weakened domestic
demand for magnesia from the steel, cement and glass
manufacturing sectors. According to the China Refractory
Association, refractory product output reached just under 28m
tonnes in 2014, down 4.5% year on year (y-o-y) and the smallest
volume since 2004 (see pp26-27).
"One of the major trends in the industry has been
the improvement in performance of refractories, which is
leading to a lower specific consumption of refractories per
tonne of steel produced [to a global average of 15kg/tonne of
steel]," said Alison Saxby, director of Roskill Information
Services’ Industrial Minerals Research
"The region where this trend is having most
impact is China, where specific consumption is currently over
20kg but is predicted to decline fairly rapidly over the next
five years to come closer to the global average."
Further industrial consolidation and new
regulations introduced by the Chinese government in order to
promote a more sophisticated refractories manufacturing sector
will also have an effect on Chinese consumption of
Chinese magnesia exports January 2014 -
February 2015 (tonnes)
Source: China Customs
In the CCM industry, the consumption drivers are
mainly agriculture, environmental and chemical applications.
This includes speciality fertilisers, dairy farming, animal
nutrition, wastewater treatment, chemicals, rubber, cement and
food, as well as steel fluxing, flame retardants and feedstock
In 2013, environmental applications made up 50%
of US consumption of CCM, with agriculture consuming 41% and
chemical intermediates taking up 8%, according to the USGS.
MDH is used principally for water treatment (see
pp45-49), then as a chemical intermediate, in
medicines and pharmaceuticals and in fertiliser. Magnesium
sulphate is used in chemicals, fertiliser,
pulp and paper, rubber, pharmaceuticals
and water treatment. Magnesium chloride brines are mainly used
for road dust and ice control.
In 2013, US CCM imports increased by 17% y-o-y
and apparent consumption increased by 8%, USGS data shows. This
is in comparison to refractory magnesia (DBM and FM), for which
net imports for consumption fell by 29% and apparent
consumption in the US declined by 22%.
For MGX Minerals, magnesia’s
non-refractory applications present better growth prospects
than those linked to struggling industrial metals and materials
"The main growth we see in magnesia is fertiliser
and wall board," MGX’s CEO, Jared Lazerson,
World fertiliser demand is expected to reach 200m
tonnes by 2018/2019, rising by an average of 1.8% per annum
between 2011 and 2018, according to the International
Fertilizer Industry Association’s outlook for the
market until 2018. The highest growth rates are forecast in
Latin America, at 3.7% per annum, where cultivated land area is
expanding steadily, followed by Africa, at 3.4% and West Asia,
Wall board uses magnesium oxide and its
consumption is linked to the construction industry. World
construction industry output grew by 4.5% to reach a value of
$7.5 trillion over 2013, according to statistics portal,
Although construction industry growth has slowed,
there is a second reason why both fertilisers and wall board
are growth areas, according to MGX Minerals. "These are mass
market mass tonnage products that have very few constraints in
terms of grade and impurities," Lazerson told
However, Lazerson believes that the margins will
come from the DBM market, even if this is not a growth market
currently, because of the lack of substitute materials that can
offer the same performance in refractories.
"The DBM market will remain the high margin
market and may be augmented by new refractory applications.
There are few materials that can be used to replace magnesia in
refractory brick," said Lazerson.
Magnesita Refratarios still believes there is
growth to be harnessed in the refractories market, as long as
the company positions itself correctly. According to the
company’s full year 2014 results, North
America’s stainless steel and mini mills markets
continue to offer opportunities for the Brazil-based
"The volume [of refractory products] sold in
North America (ex-Mexico and ex-integrated mills) grew by 8.2%
[in 2014], driven by good performance in the stainless steel
segment, and market share gains in both stainless and mini
mills," the company said in its results statement.
"We remain very optimistic about our opportunity
set in North America, especially in sales to the integrated
mills. We believe that the steel industry in North America
should become our largest market in 2015," said
Magnesita’s CEO, Octavio Pereira Lopes.
A mini mill is traditionally a secondary steel
producer, obtaining most of its iron from scrap steel, recycled
from used automobiles, or byproducts of manufacturing. They use
an electric arc furnace (EAF), a device that can be stopped and
started easily, allowing mini mills to follow market demand,
operating on 24 hour schedules when demand is high and cutting
back when sales are lower.
The recycling of steel scrap plays an important
role in the conservation of energy and US mini mills are the
US’ largest recyclers, according to Eric Stuart,
vice president of the Steel Manufacturers Association.
"Mini mills are the major growth component of the
North American steel industry," said Stuart.
The mini mill share of US steel production has
grown from 10% in the 1960s to roughly two-thirds of production
today, according to Stuart.
"National economic security is a core reason for
the US to have a viable, strong domestic steel industry. US EAF
steel producers are an essential component of that security.
That is precisely why US policy should clearly recognise the
value of, and needs to ensure the continued viability of, the
US supply of ferrous scrap," he said.
North America’s recovery in the
stainless steel market is particularly strong when compared to
other countries around the world. In 2014, North American
stainless steel performed well and grew by 5% y-o-y, according
to Magnesita. This is compared to steel growth of just 1.14% on
a global basis, according to the worldsteel.
Other markets where sales performed well were
Mexico, Eastern Europe and Asia excluding China, said
"Growth markets accounted for almost half of the
sales growth and represented 29% of sales to the steel industry
in 2014," the company said.
However, despite the relatively positive economic
outlook for the US, the country’s steel industry
has been hit by imports, reduced demand from the energy sector,
a strong US dollar and high inventories in the first quarter of
2015, according to Roskill’s Saxby.
"This could reflect on refractories demand if
this is sustained," she said.
Global magnesia trade in 2014
(millions of tonnes)
Global magnesia supply
China dominates global magnesia supply, producing
69% of the world total in 2013, according to the USGS. Together
with Turkey and Russia, the three countries accounted for 80%
of world magnesia production in 2013. Seawater and natural
brines accounted for about 69% of US magnesium compounds
production in 2014, which was valued at $251m in
Resources from which magnesium compounds can be
recovered are virtually unlimited and are globally widespread,
according to the USGS, although economically viable sources are
Identified world resources of magnesite total
12bn tonnes, while total reserves in the countries listed as
actively producing the ore is estimated at 2.4bn tonnes, the
2014 USGS data shows. Figures for reserves of other sources of
magnesium compounds are less concrete. The USGS states that
resources of brucite amount to several million tonnes.
Resources of dolomite, forsterite, magnesium-bearing evaporite
minerals, and magnesia-bearing brines are estimated to
constitute a resource in billions of tonnes. MDH, meanwhile,
can be recovered from seawater, of which supply is
theoretically virtually unlimited.
In total, the USGS estimates that around 7.3m
tonnes magnesite was produced in 2013. This comprises: 4.9m
tonnes from China; 400,000 tonnes from Russia; 320,000 tonnes
from the US; 300,000 tonnes from Turkey; 280,000 tonnes from
Spain; 200,000 tonnes from Austria; 200,000 tonnes from
Slovakia; 130,000 tonnes from Australia; 115,000 tonnes from
Greece; 80,000 tonnes from North Korea; 60,000 tonnes from
India; and 150,000 tonnes from other countries in the
This figure is a 1.15% increase on the total
magnesite production from 2012, which came in at 7.2m tonnes,
according to USGS estimates.
Russia is home to the largest magnesite reserves
(see pp38-40), with around 650m tonnes of identified
magnesia present, although the country only extracted 0.06% of
that in 2014, producing 400,000 tonnes last year.
In contrast, the US harbours just 10m tonnes
magnesite. However, the country produced 3.2% of those reserves
last year, or 320,000 tonnes, the highest ratio of production
to reserves in the world in 2014.
All of the countries surveyed by the USGS
increased their production of magnesite between 2013 and 2014,
apart from Austria, where production fell by 20,000 tonnes
y-o-y to 200,000 tonnes.
Austrian magnesia and refractories producer RHI
AG has reduced its production of FM in response to low
"Noting that magnesia demand for refractories has
been subdued in 2014 and continuing into 2015, it appears
that there is sufficient capacity for high grade DBM and FM for
the medium term," said Saxby.
The problem is too much supply at a time when
consumption is shrinking. In China, producers with large
inventories of magnesia to clear have been forcing down prices
of magnesia in tenders to supply steel makers with refractory
materials, according to discussions at the China Refractory
Association annual general meeting (AGM) held at the end of
Magnesia prices according to the
IM Prices Database have fallen over the past
two years in line with this pressure. DBM (94-95%, FOB China
magnesia) was priced at $350-390/tonne in April 2015, compared
with prices of $450-480/tonne in April 2013. For the lower
grade DBM (90%, lump, FOB China), prices have dropped to
$270-290/tonne from $320-350/tonne over the same
For FM, the price of high grade material (98%
MgO, lump, FOB China) has fallen from $1,023-1,100/tonne in
April 2013 to $950-1.000/tonne in April 2015. Lower grade FM
(97% MgO, lump, FOB China) has fallen from $890-1,000/tonne to
$850-940/tonne over the same period.
The price pressure created by too much inventory
has left producers in China with unsustainably narrow margins
on their production. Some magnesia producers claimed at the
China Refractory Association AGM that their margins were now
less than 5%. In comparison, Brazil’s Magnesita
Refratarios’ margins in 2014 were 13.5%, according
to the company. Magnesita said that this represented a drop
from the previous year’s margins of 14.9%, but the
level is nonetheless significantly higher than the margins
claimed by Chinese producers, where fierce competition and
'price wars’ are adding to the pressure of
Margins at US-based Martin Marietta Magnesia
Specialties in 2014 were 35.8%, meanwhile. Although this is
down y-o-y, it still dwarves those of Chinese producers.
"In China, refractory markets are being hit by
overcapacity combined with slowing demand as
(…) Chinese steel production stutters, suffering
from overcapacity, excess supply and fading prices," explained
Chinese regulation is also affecting the margins
of magnesia producers. New enforced policies on the environment
and on health and safety regulation means that companies will
have to invest in new, environmentally friendly equipment, and
upgrade existing dangerous practices to comply with regulation.
At a time of meagre profit levels, many are resisting the
pressure to make the necessary changes.
Mistakes in government policies have cost the
industry dearly. In Liaoning province in 2014, all
industrial companies were forced to switch to two-stage coal
gas generation furnaces at a cost of several million renminbi
in order to improve air quality.
However, when it was later discovered that
groundwater in the region had become contaminated by waste
effluent from the furnaces, a costly switch back to natural gas
power supply is now expected.
Oversupply has been dealt with differently in
Europe. RHI said in its 2014 results statement that it would
reduce the production of FM at its Porsgrunn plant in Norway
due to low prices.
The company also announced plans to shut down
production at its German magnesia raw material site, saying
that this will be assigned to other plants.
RHI made $1.721bn in revenues in 2014, down
slightly from 1.754bn in 2013 and 1.835bn in 2012, according to
the company’s results.
While Europe-based companies are exerting
self-imposed supply discipline in response to market
conditions, industry observers in China have remarked that top
down action is needed to tackle the problem of overproduction
there. At present, the sector is characterised by infighting,
with producers seeking to run competitors out of business as
well as looking to export markets to offload surplus production
for which there is no demand domestically.
Elsewhere, development of magnesite deposits in
Australia and Canada and the recent expansion of processing
capacity in Australia, Brazil, Iran, the Netherlands, Norway,
Russia and Turkey may increase supplies of magnesium compounds
outside of China, according to the USGS.
This could add pressure to prices for globally
traded material, however some of this additional capacity is
likely to be intended as part of vertical integration plans for
refractory and other magnesia product suppliers, giving these
manufacturers greater control over supply, prices and quality
of raw materials.
New or reopened production capacity has also
provided consumers with an alternative to FM produced in China,
according to the USGS.
In Greece, Terna Mag SA shipped its first
magnesite order to Italy in February. The shipment of 2,500
tonnes was part of its broader €100m ($106.7m*, or $124.5m
at the time of the announcement) investment plan to revive
mining activities in the country’s Mantoudi
region. The company said it expects to produce 450,000 tpa
magnesia in 2018, of which 100,000 tpa will be CCM and 35,000
tpa will be DBM.
In Russia, the leading magnesia producer,
Magnezit Group, recently commissioned a new FM furnace with a
capacity of 50,000 tpa.
In Japan, Ube Material Industries told
IM in September 2014 that it is planning to
expand its capacity by 8% by 2017. The Ube, Yamaguchi-based
company said that it would continue to focus on niche markets,
including non-refractory applications such as water treatment,
although it also produces a range of DBM products.
Just as with any raw material reliant on supply
and demand, magnesia is susceptible to headwinds and risks. For
companies producing into the market, and for those consuming,
positioning a business so that it can weather these challenges
as and when they arise is key to offsetting any negative
The principal headwind facing magnesia producers
is the decreased demand for refractory products, which, in
turn, is linked to global economic development. Despite the
flat production of steel worldwide, companies like Magnesita
and Martin Marietta’s Magnesia Specialties
business have delivered y-o-y sales growth.
Revenues in Martin Marietta’s
magnesium segment brought in $58.2m for Q4 2014, up $100,000
from the same quarter the previous year. For the full year, the
company recorded net sales of $236.1m, up from $225.6m in
"The Magnesia Specialties business is sensitive
to changes in domestic steel capacity utilisation and the
absolute price and fluctuations in the cost of natural gas,"
the company cautioned.
"In addition, availability of rail cars and
locomotives affects the company’s ability to move
dolomitic lime, a key raw material for magnesia chemicals, to
both the company’s plant in Manistee, Michigan,
and customers," it added.
"The availability of trucks, drivers and railcars
to transport the company’s product, particularly
in markets experiencing high growth and increased demand, is
also a risk and pressures the associated costs."
Austria’s RHI, which is reducing its
magnesia capacity to stave off low prices, has also adjusted
its business model in other ways to position itself against
decreased refractories demand.
The company has decided to stop purchasing raw
materials for its applications in the industrial business and
opted to produce them in house instead, using the facilities
previously used to produce magnesia.
"[Raw materials] will be produced at the American
site starting in the year 2015 in order to improve capacity
utilisation," said the report accompanying RHI’s
Magnesita has also managed to outperform slow
refractories demand. Group sales were up 8.1% on 2013, with
volumes of refractories sold climbing 4.1% to 1.03m tonnes over
The Brazilian company also grew its services
business to compensate for the soft refractories demand.
Revenue from the services segment grew by 36.7% in the year, to
Brazilian real (R$) 165m ($54.8m*), accounting for 5.8% of
Magnesita’s consolidated revenue in 2014,
according to the company’s 2014 results.
Boosted by the Reframec acquisition in June 2013,
services rendered to industrial clients grew by more than 100%
in the year, both in Brazil and South America outside
Service revenue also outperformed in the steel
industry, increasing 17% in the year, driven by a strong
performance in North America.
By positioning themselves in sectors other than
refractories, these companies have been able to perform
strongly relative to less well situated peers.
In spite of the glut of magnesia, concerns about
the availability of raw materials have lead several refractory
producers to secure captive sources of magnesia in recent
years, according to the USGS.
In August 2013, RHI offered to purchase a
magnesite mine and adjacent processing facilities in Erzurum in
Turkey from Cihan Group, and the acquisition was nearing
completion in April 2014.
RHI planned to reopen the mine and expand and
modernise the plant, increasing sintered magnesia capacity to
100,000 tpa from 60,000 tpa. The deal collapsed in October
2014, however, when RHI halted its purchase of the rights to
the project, as contractual conditions required by Magnesit
Anonim Sirketi, RHI’s Turkish subsidiary, were not
met by the 30 September 2014 deadline.
RHI, which currently operates magnesite deposits
in Austria, Italy, Turkey, Ireland, Norway and China, declined
to disclose at the time whether it would be pursuing further
acquisitions. However, the USGS expects that more magnesia
consumers will buy up raw-material suppliers within the
"Generally I think supply [of magnesia] is fairly
good, and demand will increase modestly, tied to the steel
industry," said Lee Bray, mineral commodity specialist at
"The wildcard is, how will Europe’s
economy improve over the next few years? If the situation with
Greece implodes, it could have a negative effect on the steel
industry, which will have an effect on magnesia
For China, new environmental regulations may see
operations shut down, which in turn
could cut off some supply from Chinese production. However,
according to Bray "any shut down of the smaller operations will
be offset by the expansion of the larger mines".
In 2014, Germany was the largest importer of
magnesite, buying 525,172 tonnes, mostly from the Netherlands,
which is a trading post rather than a major supplier, according
to global trade statistics consultancy Tradeviews. Following
shortly after were Japan and the US, with 420,536 and 392,089
tonnes imported, respectively, with both countries being
supplied principally from China.
China itself imported 159,759 tonnes magnesia,
most of which (133,658 tonnes) came from the
People’s Republic of Korea.
China was the world’s biggest
exporter, sending out 1.9m tonnes of magnesite
in 2014. However, in recent years, the country has not met its
export quota and China still has spare export capacity,
*Conversions made April 2015