Magnesia: A Sino-Soviet split?

By Laura Syrett, Albert Li
Published: Friday, 18 March 2016

China remains the world’s dominant magnesia supplier, but domestic overcapacity and shrinking international demand are unsettling the sector, particularly as the country looks set to lose one of its largest export markets – Russia. Albert Li, IM Analyst and Laura Syrett, Acting Editor, examine Chinese export trends over the last year and look at Russia’s efforts to establish its own magnesia industry.

Chinese fused magnesia exports by
destination 2015
Magnesia1 
Source: China Customs 

The period following the Chinese New Year and accompanying February Spring Festival holiday is a time when the country’s industrial sector usually kicks energetically back into life to make up for two weeks of precious lost manufacturing time. This year, however, China’s magnesia industry, which limped into the festive break after a dismal 12 months of weak demand and softening prices, was still looking grim.

Fused magnesia (FM) producers have been operating at well below production capacity since last year. This reduction in supply has helped keep the average domestic price for Chinese FM (>97% MgO) stable, at around Chinese renminbi (Rmb) 2,400/tonne ($368/tonne*). 

Deadburned magnesia (DBM) and high purity magnesia prices have fallen, however, with selling values down by 6-7%, on average, to around Rmb 800/tonne ($123/tonne) and Rmb 1,400/tonne ($215/tonne), respectively. 

China’s magnesia producers say that business is bad. They blame the slump in the market on falling demand in both domestic and export markets, as a result of the slowdown in steel production, which has cut the consumption of magnesia-based refractories. 

According to the World Steel Association (worldsteel), which tracks the steel output of 66 reporting countries month-by-month, global crude steel output fell by 2.8% in 2015, to 1.62bn tonnes. Chinese output fell by 2.3% over the period, to 803.8m tonnes.

Average FM import prices
by destination in 2015

Country

Price/tonne

Brazil

$605

Italy

$604

South Korea

$598

US

$573

Netherlands

$545

Japan

$545

Russia

$518

Turkey

$500

India

$470

Source: China Customs,
adapted by IM 

China has its own specific problems as well. The country’s magnesia sector is facing serious overcapacity, fierce competition leading to price undercutting and aggressive marketing practices. The fall in the price of coal has reduced energy costs for magnesia producers, but they have been obliged to pass this on to customers, further eroding the sale price of their products.

In an effort to solve these problems and regulate the Chinese magnesium products industry, a new exchange platform, the Northeast Asia Magnesia Material Trading Centre, was launched in Liaoning province, the largest magnesia-producing region in China, in March 2014.

Although the platform has been reasonably active in trading magnesium ingot, industry sources told IM that there have been very few magnesia trades since it opened, owing to the weak state of the market and the failure of the government to push companies to sell via the exchange.

Moves by the Liaoning Special Resource Protection Office, which has a mandate from the Chinese government to ensure that valuable magnesite resources in the province are reserved for only the largest and most efficient mining companies, have also proved largely futile to date.



Chinese fused magnesia exports 2015
Magnesia2 

Source: China Customs 

Chinese FM trade

In 2015, China’s FM exports reached 301,834 tonnes, down by 18.2% year-on-year (y-o-y). The total value of the material exported was $168.98m, a decline of 20.9% y-o-y, while the average price stood at $560/tonne, 3.2% lower than the year before.

Russia took the largest share of Chinese FM exports last year, at 16.5% of the total, having increased its imports from China by 68.3% – a surge which Russia is hoping to reverse over the coming years (see below).

Developed nations, including Japan, the US and countries in the EU (collectively represented by the Netherlands, which received most of the material before re-exporting it from the country’s major logistics hubs at Rotterdam and Amsterdam), roundly cut their imports of Chinese FM in 2015, along with emerging economies like Brazil and Turkey. A few countries, notably South Korea, Italy and India, slightly increased their Chinese FM volumes, however.

Average DBM import prices
by destination in 2015

Country

Price/tonne

Indonesia

$405

Iran

$335

Italy

$268

Japan

$265

US

$243

South Korea

$234

Mexico

$224

Source: China Customs,
adapted by IM

Chinese DBM trade

Chinese DBM exports in 2015 totalled 541,000 tonnes, down 18.4% y-o-y. The total value of these exports was $148.8m, 20.2% less than in 2014, although the average DBM export price fell just 2.2%, to around $275/tonne.

The US, Japan, and the Netherlands (EU) together accounted for nearly 70% of imports of Chinese DBM in roughly equal shares last year, but each country imported slightly less than in 2014. South Korea’s Chinese DBM exports fell by 6.8%, while Indonesia and Italy marginally increased their import volumes. 

Chinese CCM trade

China exported 380,000 tonnes caustic calcined magnesia (CCM) in 2014, representing a 9.7% jump in volumes y-o-y. The total value of these exports was $81.84m, up 13.4% y-o-y and the average price was $215/tonne, 3.4% higher than the year before.

The major importers of Chinese CCM were the US, Japan and the Netherlands (EU), which collectively accounted for 66% of shipment volumes and all except the Netherlands (where imports slumped by 32.2%) posted a y-o-y increase in the amount they imported.

Chinese deadburned magnesia exports 2015
Magnesia3 
Source: China Customs

Russia seeks to reduce dependence on Chinese magnesia

As one of the largest importers of Chinese FM in 2015, Russia still largely relies on international sources for its refractory grade magnesia products owing to the lack of technology and capacity to produce the materials domestically.

This looks set to change, however. As part of a broader move by Vladimir Putin’s administration to reduce Russia’s import dependence for various commodities and raw materials, the government is supporting new mine developments and reviving old Soviet era projects.




In February this year, vertically integrated Russian refractories producer, Magnezit Group, announced plans to increase FM production in Krasnoyarsk, southern Siberia.

Chinese deadburned magnesia exports
by destination 2015
Magnesia4 
Source: China Customs

According to a socio-economic agreement signed between Magnezit and the Ministry of Industry, Energy and Trade of the Krasnoyarsk Territory the company will up its FM production to 50,000 tpa by 2020. Magnezit will also construct the second stage of its existing fusion facility, which is planned to have an annual production capacity of 100,000 tpa, within five years.

In 2011 Magnezit obtained a licence to develop the Talsk magnesite deposit in Razdolinsk. Together with the neighbouring Kirgiteisk deposit, which the company has been developing since 2006, Talsk is the company’s primary source of magnesite in Siberia, with more than 110m tonnes in known reserves.

The Krasnoyarsk project is just one part of Magnezit’s strategy to improve the quality and increase output of its products, which it markets under the brand name, Russian Magnezit, and sells to a growing number of countries in the CIS and Europe. 

Average DBM import prices
by destination in 2015

Country

Price/tonne

Japan

$230

US

$220

New Zealand

$214

Netherlands

$209

Taiwan

$205

South Africa

$195

Indonesia

$180

Source: China Customs, adapted by IM

"Magnezit is realising a strategy of qualitative growth, aimed at the innovative upgrade of production capacities and technological processes," the company’s CEO, Sergei Ogedov, told IM. "During the last few years, we have launched in state-of-the-art processing facilities in Satka, in the Chelyabinsk region and Razdolinsk, in the Krasnoyarsk Territory, and worked on producing and using our own high-quality Siberian magnesite."

"This has made it possible to improve our entire range of products and manufacture new, high-quality materials, including DBM and FM, with an MgO content of 97%, which we have called Russian Magnezit."

In addition to ramping up its production of both Russian Magnezit and finished refractory products based on this material, between 2017 and 2020, the company intends to construct a new complex containing its second multiple-hearth furnace for the production of an additional 100,000 tpa of CCM at Satka.

After a few years of price erosion, Ogedov said that the market and prices for magnesite and magnesia-based products are more or less stable – probably, he suggested, due to the fact that selling prices have fallen so close to the production cost of magnesia.

Chinese Caustic calcined magnesia
exports by destination 2015
Magnesia5 
Source: China Customs

"There is no observable upward trend in prices now and we think that the situation will hardly change before the end of the year," he said. "There is no tendency for improvement on the part of refractories consumers. Uncertainty [about demand] for their products is part of the wider uncertainty in refractories markets."

As well as delivering its products to its traditional strongholds in Russia and the CIS countries, Magnezit has for some time been working, with some success, on entry to Chines, European and North American markets and
is now trying to crack the Middle East and
North Africa.

"The main efforts of Magnezit Group are concentrated on optimisation and expansion of our existing market share. However, thanks to the widening of production opportunities for magnesia raw materials, we are also actively looking at new markets," said Ogedov.

Magnesia products Magnezit has been working on for some time include gunning mixes and refractory concrete – areas in which Ogedov said the company has made good progress. "In terms of novel developments, our main direction has been towards producing magnesia-spinel refractories with different additives for cement and lime kilns; magnesia-carbon refractories for ferrous metallurgy; and new types of fluxes and additives for optimising melting operations."   

Chinese Caustic calcined magnesia exports 2015
Magnesia6 
Source: China Customs

Ogedov stressed that Magnezit has not benefitted at all from Russia’s import restriction and substitution policy, but has seen its sales rise as a result of the devaluation of the Russian rouble, which made its products more competitive against imports for domestic buyers.

"Due to the present uncertainties in the main refractories-consuming markets (ferrous and non-ferrous metallurgy and cement) these industries are endeavouring to lower their costs to lower considerably all costs. Because Magnezit has its own raw materials base and production facilities within Russia and because the quality of our products is now analogous with imported materials, we have gained substantially," Ogedov said.

*Conversions made March 2016