Shifting consumption patterns to drive metspar demand

By Shruti Salwan
Published: Tuesday, 25 August 2015

Metspar market braces against steel slump and double whammy of high quality and low prices.

Following a year of slow demand and overcapacity, coupled with a shift in consumption patterns in  major end markets, a rebound in the metallurgical grade fluorspar (metspar) industry is likely to remain at bay over the coming months. 

The recent trends seen in the global steel market have played a major role in influencing demand for industrial minerals used in steel manufacturing, leading not only to a squeeze on consumption rates, but also a shift in regional trade patterns. 

Most notably, China has registered a drop in metspar usage, with imports falling by 7.7% year-on-year (y-o-y) in H1 2015, as enforcement of environmental improvement regulations in the country’s steel industry cut consumption. 

IM learned from sources that steel producers in China are gradually replacing old top-blown basic oxygen furnaces with modern electric arc and induction furnaces with attached gas collection systems, causing comparatively less pollution. 

These modern furnaces are more environmentally friendly and more efficient, resulting in less metspar consumption.  

Metspar is used as a flux for melting and refining steel in integrated steel plants and foundries, and as such, demand is closely tied to the performance of these industries. 

A once reliable growth engine for steel, China is expected to feel a sharp impact from overproduction and plummeting demand for steel, as the country’s economic growth slowed to an official rate of 7.4% last year, the lowest increase in GDP since 1990.

Chinese steel output fell 1.3% y-o-y, totalling 409.97m tonnes in H1 2015, with 43% of steel producers registering losses in the first half of the year, according to China’s Steel Association. The ripple effect from this trend has already been felt by Mongolian metspar producers, which account for over 85% of China’s metspar imports. These fell by 11.3% in 2014.

Steel production vs. Metspar imports into China and
the US (H1 2012 - H1 2015)

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Higher CaF2, lower prices

Although metspar showed greater resilience to price drops than
acid grade fluorspar (acidspar), producers have been pressed on quality issues, market sources told IM

With most Chinese producers aiming to produce material for export markets, metspar with 85-90% CaF2 content has seen a surge in stockpiles, as steel companies in China consume metspar with 50-70% CaF2 content and demand for higher quality material outside the country remains sluggish.

In view of the industry’s slowdown, Chinese steel producers have been reluctant to pay the high prices for high grade metspar material, while buyers outside of China have started demanding higher quality material at lower grade price levels. 

Stronger demand for higher metspar grades has been registered from Turkey, India and Pakistan, where low quality cheaper grades have traditionally been prevalent. A similar shift in demand has been seen from the Gulf region, where high quality, low-priced Chinese metspar is benefitting against high-priced supplies from other significant producers. 

Nevertheless, for suppliers, this has caused a double whammy of excess high quality material and low prices amid weak demand. 

Shift in trade patterns

The Chinese government has been consolidating a number of raw material markets in recent years in order to reduce small scale and inefficient mining practices and also to encourage greater domestic integration to enhance downstream, value-added markets.   

These developments are likely
to see greater volumes coming from various parts of Asia and Africa, while the desire to secure long-term supply is expected to induce a more regional approach to trade partnerships. Demand from the steel industry in markets outside   China, including the US, India and Japan, is likely to determine the destinations of metspar trade. 

As steel and refractories production in these markets rebounds, sales of metspar will increase. Also, steel output in peripheral producing regions, such as Africa and the Middle East, is expected to grow by up to 8%, and the US steel market could yield greater demand for metspar and cause a shift in trade patterns away from traditional EU and Chinese markets. 

This is likely to protect consumption levels to a certain extent, with recovery in industrial demand to occur gradually. However, in the medium term, the outlook for the metspar market appears dim in the face of excess supplies.