Magnesita: Efficiency and cost control top 2016 refractories agenda

By Liz Gyekye
Published: Monday, 21 December 2015

A weak steel industry, falling consumption and declining prices are just some of the hurdles facing refractories producers in 2016. Liz Gyekye, Chief Reporter, spoke to leading Brazilian manufacturer Magnesita Refratarios SA’s CEO, Octavio Lopes, about how the company is planning to deal with these issues.

What was the defining 2015 moment for Magnesita?

2015 was a challenging year for all refractories companies as well as for their main end clients, such as steel and cement makers, given the overall macroeconomic situation, the drop in commodities prices, and China’s slower growth. But I believe that it was a special year for Magnesita as we could see that our diversification strategy, designed in 2012, is proving to be beneficial. We have been gaining market share in our core markets, as well as in markets outside South and North America and Western Europe, where we historically have not had a significant presence.

What is your outlook for the refractories market in 2016?

We believe that the outlook remains challenging, since conditions are worsening in markets like Brazil and in large parts of Western Europe. There is a big question mark regarding the US, which has been attacked by [cheap] steel imports that also affect refractory producers.


What are your plans for business growth?

Our growth strategy is based on consolidating our position where we already have market leadership and growing in markets where our presence is below target. Additional focus will be given where our service-intensive business model and our integration through our Brazilian Brumado magnesite mine gives us a competitive advantage to secure further revenue.

Where do you see attractive opportunities in select market growth areas?

We believe growth opportunities will come from markets where our presence is still modest, like the Middle East, Africa, integrated steels mills in North America and Southeast Asia. We also see significant growth worldwide in cement, since we have the highest quality product line and a significant cost advantage, due again to our unique high grade magnesite reserves in Brazil.

We expect cement demand will be strong, but in steel we see a challenging year ahead due to global excess capacity and the growth of exports coming from China.

What is your outlook for magnesia supply and demand in 2016?

We see a situation similar to 2015, with stable prices.

When do you expect the steel sector to start picking up?

Not [in 2016] on a global basis. There is a lot of uncertainty as to whether China will be cutting capacity or not. Nevertheless, countries like the US, Brazil and EU countries are considering imposing antidumping and countervailing duties against China and other countries, which could change the scenario for their local steel industries, as demand remains stable.


In operational terms, what is the most important focus for you this year?

We believe operational efficiency will be the most important for 2016 because it is the only thing that you can control in the short term.

Difficulties in your Chinese business hurt Magnesita’s earnings in Q3 2015. What is your position on China now?

In spite of the difficulties in the Brazilian economy, our Brazilian operations remain very strong, since they serve our clients worldwide and are very competitive.

Our recurring profitability actually increased significantly in 2015, with 27% growth in recurring EBITDA* year-to-date to September. Our reported net income was impacted by some non-cash and non-recurring expenses.

In regards to China, we continue to operate very successfully through our plant in Dalian, a city based in China’s northeastern Liaoning province, which serves the external market. On the other hand, we have largely exited the internal Chinese market that was never significant to us and is largely unprofitable.

What do you think about the consolidation of the Chinese refractories sector?

We believe that, together with Chinese refractories consolidation, there will be a consolidation in magnesia production too, maintaining the balance between supply and demand. 

What is Magnesita doing to innovate and find new productivity gains?

Our global research and development team continues to develop and create new products and to improve the efficiency of our current portfolio. We also have the strongest technical assistance team in the industry. This team is constantly developing new solutions that enable our clients to reach the highest performance with the lowest cost. We are also very cost conscious and have several ongoing initiatives to improve our productivity levels.

What will you be doing for your customers this year?

We believe that our customers’ main priority for 2016 will be cost control. In times like these, our cost per performance (CPP) model, under which refractories producers and steel makers foster a partnership towards greater efficiency, is the right solution. With Magnesita’s CPP solutions, our interests and the interests of our clients are aligned towards the delivery of the highest performance with the minimum refractory cost per tonne of steel produced.

*Earnings before interest, taxes, depreciation and amortisation