MagMin 2015: Chinese competition squeezes Europe’s CCM producers

By Laura Syrett, Albert Li
Published: Tuesday, 19 May 2015

Magnesia producers in countries like Greece pride themselves of state-of-the art facilities, which are clean and efficient, but investment in technology is not being matched by companies in China, which continue to undercut European suppliers, even in their local markets.

Lower labour costs and softer environmental regulations in China are making it harder for European producers of caustic calcined magnesia (CCM) to compete with their Chinese peers.

Speaking at the IM MagMin 2015 conference in Athens, Greece, Michael Tsoukatos, director of development at locally based miner Grecian Magnesite, said that what has traditionally been a low-margin industry is under increasing pressure from cheap Chinese material in the market.

"It is a very competitive market," he said. "Consumers are always looking for cost reduction opportunities."

CCM is mainly used as an ingredient in animal feed, but has other speciality applications in markets like water treatment, construction and automotive.

China has dominated the global magnesia industry for the last two decades and produced about 4.3m tonnes CCM in 2014, or 73% of world production, according to figures compiled by the China Chamber of Commerce of Metals Minerals and Chemicals Importers and Exporters (CCCMC), quoted by independent consultant, Ian Wilson.

Reasons for this dominance include China’s production cost advantages, as well as lower wages. This position rests on less stringent standards for air quality and emissions, meaning Chinese companies are not required invest in more expensive, clean production plants.

European companies with no choice but to comply with environmental regulations are attempting to circumvent China’s advantages by offering high quality material with supply security guarantees at stable prices.

Greece-based Terna Mag, which began shipping magnesite last year under the Gek Terna group of companies from former FIMISCO facilities in Euboea Island, approximately three hours northeast of Athens, has been eager to showcase its business and establish a global customer base.

Comprising a mixture of old and new factories, warehouses, a port, an open pit magnesite mine and a processing facility in the Mantoudi area of Euboea, Terna Mag has invested in new calcination equipment, a multiple hearth furnace (MHF) and a new laboratory to position itself as a modern supplier of CCM and dead burned magnesia (DBM).

 Terna Mag Mantoudi magnesite mine plant
Terna Mag has invested in new equipment at its Mantoudi magnesite facility on Euboea Island, where it has revived the past-producing operations of FIMISCO (source: Gabriella Kiss).

Following completion of phase one of Terna Mag’s development plan, the company has the capacity to produce 60,000 tpa CCM.

Phase two, which will see the implementation of a second MHF, a briquetting unit and shaft kiln for DBM production for a total capacity 90,000  tpa CCM and 30,000 tpa DBM, is due to be finished by the end of next year.

This level investment is not being matched by rival magnesia companies in China, however. Chinese producers will not use the type of modern equipment employed at Mantoudi because it is more costly and CCM can be produced relatively simply using more primitive methods.

Although some large Chinese players did decide to switch to modern, clean equipment for recently-opened new projects, they quickly changed back to older, less costly production methods to preserve budgets when prices came under pressure.

Modern processing technology reduces dust and improves air quality, but Chinese producers are opting for cheaper, dirtier production methods while pollution standards remain lax.

Terna Mag’s decision to expand production at a time when there is already overcapacity in the industry has raised eyebrows, although some point out that entering a market when prices are low is a good point at which to invest, as it encourages the leanest possible project economics.

Emmanouel Tsontakis, general manager for Terna Mag, acknowledges that the market is challenging. He said that a third phase of expansion, which would see the company re-construct a private jetty, install a flotation unit for upgraded beneficiation and the production of magnesium hydroxide, is being put on ice until it is clear whether there is a market need for this additional output.

Chinese differences

One China-based market participant said that Chinese competitors can see that magnesite resources in Greece are different from those in China in terms of chemical composition and physical structure, and they know that Greek production costs are higher.

However, there is a lack of knowledge in China in terms of grade categorisation and appropriate end markets for different magnesia products, so Chinese producers are keen to learn from European companies like Terna Mag and apply this understanding to their own projects.

China continues to pose a significant competitive threat to European magnesia producers in the latter’s local markets, despite Europe’s advantages in terms of freight cost and quality.

 Terna Mag washing_MagMin 2015_Gabriella Kiss
Despite dominating the industry, Chinese companies are eager to learn from their European magnesite competitors to help them understand how to classify their own material (source: Gabriella Kiss).

China’s lower production costs and large capacity give it pricing power that many European suppliers struggle to match, although recent European Union anti-dumping legislation on certain magnesia-based products has helped to mitigate the erosion of magnesia prices in Europe.

According to David Che, CEO of China-based Sinomagchem Co., there is a risk that the Chinese government may force all companies to upgrade to new modern plants and facilities, like those used in Europe, but it is unclear whether this will be a blanket policy across the industry.

The government has different standards on for different companies if some have the right connections and this will be unfair, Che told IM.

He was also pessimistic about new environmental protection legislation, as he believes that the government is unlikely to force the closure of all magnesia producers in China while they upgrade their equipment because of the loss of tax revenue.

Like other Chinese magnesia producers battling amid the fiercely competitive, low-priced magnesia industry, Sinomagchem are trying other ways to make money from magnesia.

It has stopped selling its CCM and is instead using it internally as a raw material for other, higher value products, such as magnesium sulphide, for which is now ranks as the second largest producer in the world, according to Che.

Terna Mag magnesite Mantoudi Euboea 
Terna Mag is hoping to build up its share of the European CCM and DBM markets (source: Gabriella Kiss). 

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