Refractories output in China slipped for the
first time in a decade last year as the country’s
economic growth slowed to a rate of 7.3% in the final quarter
– the lowest increase in GDP since 1990.
This conclusion is based on analysis by the China
Refractory Association, which held its annual meeting in
Yixing, Jiangsu province, at the end of March.
Speaking at the meeting, Baikuan Liu, director of
the association, said that in 2014, Chinese refractory product
output (excluding raw materials such as magnesia, bauxite and
graphite) reached just under 28m tonnes, down 4.5% year-on-year
(y-o-y) and the smallest volume since 2004.
By product category, compact shaped refractories
output stood at 16.56m tonnes, down 4.31% y-o-y; heat
preservation and insulation refractory products output was
526,300 tonnes, down 5.56% y-o-y; and production of unshaped
refractory products was 10.9m tonnes, down 4.68% y-o-y.
Baikuan cautioned that these figures may
underestimate the scale of the decline, since the numbers were
compiled based on companies’ own reports to the
China Refractory Association, which may have overstated
volumes.
Production capacity in the country remains
unchanged, meanwhile, meaning that many of China’s
manufacturing lines stood idle last year. The main
refractories-producing regions of Henan, Liaoning, Shandong,
Beijing and Hebei all registered a drop in production in 2014,
with only Shanxi, Zhejiang and Jiangsu recording
increases
y-o-y.
Baikuan blamed the fall in production on slowing
growth in refractories-consuming industries, including steel,
cement and glass manufacturing.
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On the bucket list: cutting
cement, steel and glass capacity are a
must for China’s oversupplied economy,
but this will have a knock-on
effect on refractories demand (Source:
MacP2007).
|
Exports increase
This drop in domestic demand was countered by an
increase in exports, as China sought to find international
markets for its surplus refractory products.
The country shipped a total of 5.66m tonnes
refractory products and raw materials last year, up 12.6% on
2013, while the aggregate value of these exports reached $3.3bn
in 2014, up 11.3% y-o-y.
This figure includes 3.8m tonnes refractory
minerals, up 16% y-o-y, the value of which stood at $1.8bn, up
12.67% on the previous year. Refractory products exports
totalled 1.86m tonnes, up 5.27% y-o-y, and were worth $1.53bn,
up 9.73%.
Domestic output continued to contract, however,
despite the rise in exports.
Research by the association at the end of 2014
found that 30% of refractories producers in Liaoning province
had halted production completely, while a further 30% had
halved output.
Similarly, in Henan province, around a third of
manufacturers had shut off production while a further third of
producers had cut output volumes by 50%.
Data compiled from 58 key Chinese refractories
companies shows that total refractories production, including
some raw materials, stood at 11.1m tonnes in 2014, up 0.7%
y-o-y, Dianli Xu, vice director of the China Refractory
Association, said.
Sales turnover was Chinese renminbi (Rmb) 35.4bn
($5.71bn*), up 3.44% on 2013 levels, with an average profit
margin of 4.27% – 1.64% below China’s
industrial average profit rate. However, this figure is skewed
by the fact that the proportion of unprofitable refractories
producers in China is smaller among the top 58 players than it
is across the whole industry.
This is part of the reason why the Chinese
government wants to consolidate the industry into a handful of
strong companies. Of the top 58 refractories companies, 51 are
profitable, with 17 businesses recording 30% increases in y-o-y
profit in 2014.
Slowing steel sector
According to the China Refractory Association,
although the average turnover of Chinese refractories companies
increased by 3.4% last year, many producers are highly
leveraged by bank loans, making them vulnerable to downturns in
end user demand.
Struggling steel companies have been slow to make
payments to refractories suppliers, Baikuan said and noted that
the Chinese government’s plan to eliminate 80m
tonnes of steel production – 60m of which will be in
Hebei province – needs to be addressed seriously by
the refractories industry.
Dianli said that in 2014, China’s
crude steel production reached 823m tonnes, up 0.9% y-o-y, but
representing a 6.6 percentage point slowdown in the pace of
growth since 2013. Overall steel production in China last year
stood at 1.1bn tonnes, meanwhile, a 4.5% increase y-o-y but
indicating a 6.9 percentage point drop in growth speed.
World crude steel production in 2014 was 1.637bn
tonnes, up 1.1% on the previous year.
Crude steel demand in China was 670m tonnes in
2012; 770m tonnes in 2013; and 740m tonnes in 2014, Dianli
said.
He explained how a fall in the price of iron ore
and coal had helped protect the profits of steel producers in
recent years, but that this had prevented capacity from
dropping out of the market and maintained average profit levels
at just 0.9%.
Crunch in construction
As well as decelerating growth in the steel
industry, faltering demand in markets such construction
materials is also eating into demand for refractory products in
China – a trend that shows no sign of reversing.
In the cement manufacturing sector, which is the
second largest consumer of refractories after steel, output
reached nearly 2.5bn tonnes in 2014, up 1.8% y-o-y – a
7.8 percentage point deceleration in growth.
Flat glass production stood at 793m weight cases,
up 1.1%, with a 10.1 percentage point decline in the pace of
y-o-y growth, Dianli said.
In the nonferrous metals industry, production
rose 7.2% to 44.17m tonnes, a growth speed drop of 2.7
percentage points.
According to Dianli, out of the main
refractories-consuming industries in China, only cement
recorded an increase in profit, with income across the sector
rising by 1.4% y-o-y.
Steel industry profit dropped by 15.3%, while the
nonferrous metals sector’s profit dipped by 1.5%
and the flat glass industry recorded a 65% dive in earnings
y-o-y.
The difficulties experienced in these sectors
have been attributed to overcapacity, which creates a situation
of low prices and slim or non-existent profits that is
difficult to resolve.
By the end of 2014, Chinese crude steel capacity
had reached 1.16bn tonnes, but the rate of capacity usage last
year was just under 71%. In the electrolytic aluminium
industry, efforts were made last year to reduce
China’s 35m tonne capacity, but new production is
due to come online despite capacity usage hovering at just
75%.
Dianli said that demand for refractories has
entered the "peak arc zone", meaning that consumption is likely
to decline from now on.
*Conversions made April 2015