Magnesia: Year in Review 2015

By Siobhan Lismore-Scott
Published: Thursday, 17 December 2015

A roundup of the year's main events in the global magnesia industry.

2015 kicked off with a series of promises from the Chinese government to overhaul the magnesia industry as part of a wider shakeup of the refractories sector. During the year, the government made several steps in this direction, swooping on magnesia smuggling rings and setting targets for production plants, with non-compliance punishable by closure. 

Despite the potential for supply chain disruption, producers outside of China remain concerned about the low cost of Chinese magnesia products when compared to materials produced in Europe and the US. 

SUPPLY SECURITY

In China, supply was constrained by a series of measures set out by the government in December 2014, intended to tackle problems in the domestic refractories industry. In January, the Shanxi municipal bureau of quality and technology supervision met with 65 refractories companies from Yangquan, Shanxi, and set out six measures to bring the industry up to globally recognised standards.

These measures included a pledge to develop and expand industrial parks by consolidation; adjust product structure; establish recognised brands; build talented and professional teams; protect resources; regulate mining; and save energy. China’s Ministry of Industry and Information Technology (MIIT) then revealed its standard conditions for the refractories industry, effective from March 2015, which followed these recommendations.

January saw the first strategic agreement signed between a refractories company and an iron and steel producer, when WISCO Refractory Materials Co. Ltd, a subsidiary of Wuhan Steel and Iron Corp. (WISCO), agreed to develop refractory products with Xinyu Iron and Steel Group.

Outside China, in February, Russia’s Magnezit Group signalled its intention to expand its reach beyond the domestic market by signing a deal to supply a Serbian copper smelter with refractory linings, via its Slovmag subsidiary in Slovakia, as well as a cooperation agreement with Vamtec SA to distribute its products in Brazil.

Elsewhere, other non-Chinese producers were vocal about the challenge of competing with Chinese production costs. Speaking at IM’s MagMin 2015 conference in Athens, Greece, in May, Michael Tsoukatos, director of development at Grecian Magnesite, said that what had traditionally been a low-margin industry is under increasing pressure from cheap Chinese material. Tsoukatos was speaking about caustic calcined magnesia (CCM), but the same issue was acknowledged by operators in the deadburned magnesia (DBM) and fused magnesia (FM) markets.

Leading Brazilian magnesia and refractories producer, Magnesita Refratarios SA, saw mineral sales increase over the year when compared to 2014, driven by a 100% increase in sales of DBM to third parties, reflecting productivity gains at its Brumado mine, however the company reported a 48-fold increase in losses in Q3 thanks to business write-downs in Brazil and China.

Austrian refractories producer RHI AG said in April that it would reduce FM production to around 30,000 tpa from Q4 2015 to cut costs and because of low market prices.

Belgium’s Sibelco SA said in September that it would restructure its workforce at the Parkhurst magnesia processing plant in Rockhampton, Queensland, Australia, and its nearby Kunwarara-based mine. As of the end of 2015, it was still unclear whether this would affect the company’s magnesia supply from Australia, which is run via the former Queensland Magnesia Pty Ltd (QMAG). Kunwarara produces around 3m tpa magnesite ore according to the US Geological Survey (USGS).

In the US, Martin Marietta had a mixed year as it grappled with fluctuating demand for magnesia from the steel industry but posted record Q3 sales totalling over $1bn in November, thanks to what it described as a construction-led recovery in raw materials consumption.

UK-based refractories producer Vesuvius Plc meanwhile continued to suffer from weak steel demand in mature markets and at the end of November said it expected 2015 earnings would be at the lower end of forecasts.

MARKET DEMAND

Chinese refractories demand is expected to slip to 24m tonnes in the next two to three years while output will drop to 26m tonnes, Dianli Chen, vice director and chief secretary of China’s Refractory Association said at the end of December 2014.

Local media reports in China over the course of 2015 suggested that some companies had halted magnesia production, although this did not appear to significantly moderate oversupply and downward price pressure.

According to Roskill Information Service analyst, Jess Roberts, lower refractories production and consumption in China will not necessarily result in lower consumption of refractory minerals across the board. For some materials such as high-grade DBM and FM, there may actually be higher consumption in refractories because of an overall trend towards using higher quality refractory products.

Other speciality markets for magnesia, particularly CCM in sectors such as hydrometallurgy, electro-fused magnesia, rubber and plastics, chemicals and magnesium oxide (MgO) panels for the construction industry, are reported to be holding up better than refractories, however these industries do not consume large enough volumes to counteract the overall negative trend in magnesia demand.

PRICE TRENDS

Magnesia prices slid over the course of 2015, with many industry observers blaming the decline on weak demand from steel markets and oversupply. At the beginning of the year, IM learned that prices in China were being forced down by anonymous bidders with large inventories and that producers were facing "unsustainably thin margins" of less than 5%.

In the Chinese FM market, producers pointed to low demand putting pressure on prices. According to export data analysed in the middle of 2015, prices and exports were down around 35% when compared to 2014 levels.

Efforts to regulate prices for Chinese magnesia are being made, however. Christopher Zhao, assistant director of the Liaoning Special Resource Protection Office, told MagMin delegates in May that the Northeast Asia Magnesia Materials Trading Centre had been established in March 2014 to solve the problems of low pricing and industry infighting, as well as to provide financing for Liaoning magnesia companies. A planned magnesia price index will help discover and "lock in" prices for magnesia products, Zhao explained.

MARKET OUTLOOK

Looking ahead, there are some indicators that high-quality magnesia will hold up better than lower grades in an overall declining market. Prices are expected to remain stable to weak, as demand is dragged down by a lacklustre steel market. 

Several companies have moved to expand global reach and seek new markets and most accept the need to innovate to stay competitive. The 2020 Olympics in Tokyo, Japan, could also create a regional pocket of relatively strong demand.