Refractories down but not out

By IM Staff
Published: Monday, 25 April 2016

Results from refractory producers in March showed the deep cut that the slumping steel market has made in the industrial minerals industry.

News that Tata Steel was looking to sell off or shut down its entire UK steel business rocked the British – and wider – steel industry at the end of March. The implications are deep and catalytic. The steel industry is one of the largest consumers of industrial minerals and while there are larger steel-producing countries than the UK (in 2015, the UK produced 10.9m tonnes steel compared to China’s 803.9m and Germany’s 42.7m tonnes, according to the World Steel Association (worldsteel)), it is not a positive signal for the industry as a whole.

Around 60-70% of the world’s refractories output is destined for the steel-making sector, while the rest is mostly used in the production of iron, cement, glass and non-ferrous metals. Minerals used as raw materials include magnesia, alumina and bauxite as well as graphite and fluorspar.

At the time of writing, it looked as though private equity firm Greybull Capital would acquire Tata’s Long Products division and potentially its speciality steel division, but the uncertainty certainly has shaken confidence in the sector. 

This has translated into production cutbacks for refractory producers. RHI Group revealed in its 2015 results that it has cut production at several plants and admitted that it could potentially source raw materials on the external market if lower prices persist.

Slower economic growth in the emerging markets, along with a weaker industrial production, led to falling price levels for many important refractory raw materials such as sintered and fused magnesia, bauxite, andalusite or fused corundum, RHI said.

That said, the group did hedge that, due to stricter environmental legislation in China, it expects raw material prices to increase in the medium term.

Elsewhere, in oil and gas markets, this month brought with it finally some good news, with prices now trading consistently above $40/bbl for both Brent Crude and US WTI.

While the uptick in the price – still a far cry from 2014 highs – spells the beginning of a potential rebalancing in the oil market, price increases have been supported by anticipation of production cuts from OPEC (which have not yet happened) and accelerating production declines particularly in the US.

Producers of oilfield minerals such as barite (barytes), bentonite and silica (frac) sand have expressed hope that prices for their products will also increase in line with the oil-price rebound.

This, however may be a little slower to materialise, as much capacity in the industry – particularly in frac sand – has come offline since 2014, with a number of producers noting that they are ready and waiting to ramp back up once the market improves.

Frac sand

Unimin Energy Solutions was the latest casualty of the still declining oil and gas market this month, as the company was forced to close its most recently opened frac sand plant in Tunnel City in Wisconsin, US.

The company said that the loss of expected orders ahead will make the plant uneconomical to operate. It also described frac sand prices as being at unsustainable levels.

Other frac sand suppliers have also recently reported losses as the downturn in oil and gas continues to worsen, resulting in a sustained decline in frac sand prices.

According to US-based Fairmount Santrol Inc., which supplies both raw frac sand and coated proppants to the oil and gas sector, average proppant prices fell 5% sequentially in the last quarter of 2015. Houston-headquartered Hi-Crush Partners noted prices in Q4 had fallen to $52/tonne, down from $57/tonne in Q3 and $67/tonne in Q2.

Soda ash

As soda ash capacity continues to come offline in China, prices for the mineral have jumped nearly 30% since their lowest point in 2015.

Sources have indicated to IM that the current market price for light and dense soda ash is around Chinese renminbi (Rmb) 1,350/tonne ($209.98/tonne*).

By the end of 2015, there were 44 soda ash companies operating in China with a total capacity of 29.9m tonnes, a year-on-year (y-o-y) decrease of 360,000 tonnes, driving a price increase from Q4 2015.

Capacity was further constrained following the  failure of a wastewater dam at Shandong Haihua Group Co. Ltd’s 3m tpa soda ash facility in the city of Weifang, Shandong province, early on 29 January. The company announced the recovery of one of its production lines on 26 February, and at the end of March said it had recovered all production lines.

New supply however is expected to enter the market, as China Salt Kunshan Co. announced the completion of its soda ash production facility on 17 March. The company spent three years on moving its factory from an urban to suburban area and is now ready to begin production.

Titanium dioxide

In titanium dioxide (TiO2) meanwhile, Chinese producers began Q2 with the biggest price rally for the pigment mineral yet.

Following three price increases in Q1 2015 from Chinese TiO2 producers, the country’s market leader Sichuan Lomon Titanium Industry Co. Ltd announced its biggest price increase to date. The company plans to up rutile prices by Rmb 500/tonne ($77.4/tonne) and by $150/tonne for the domestic and export market. This follows three price increases in Q1, each by Rmb 300/tonne ($46.44/tonne).

Lomon additionally said that exports remained stable for its TiO2 products. Producing 1,000 tonnes per day, the company reported January exports at 16,157 tonnes and February exports at 9,325 tonnes, at an average export price of $1,467/tonne.

Elsewhere, The Chemours Co. announced global price increases for all of its TiO2 grades following price hikes by  Huntsman Corp. the previous week.

Price increases of $150/tonne or the local currency equivalent will be effective 1 May 2016, or as contracts allow, for all regions.

Bauxite

Australian Bauxite Ltd (ABx) completed the first sale of non-metallurgical grade bauxite from its Tasmanian mine for use in cement applications, as the company said higher prices for non-met supply were the reason it was targeting that market.

While it did not disclose the sale price of the 5,000 tonnes cement-grade bauxite, sourced from the Bald Hill mine, and the potential subsequent shipment of 30,000 to 40,000 tonnes in the coming two months, ABx described the deal as "satisfactorily profitable".

ABx’s CEO, Ian Levy, stressed the significance of the deal, in a current scenario of sluggish prices for met-grade bauxite.

He added that the company paid particular attention during the past two years to developing the necessary specifications to supply the cement and fertiliser industries, and has now the ability to tap into these market as well as metallurgical bauxite "at the best prices and terms available".

Barite

After a substantial delay, Indian state-owned minerals exporter Andhra Pradesh Mineral Development Corp. (APMDC) released a government-run tender for the mining and export of barites (barytes) from its Mangampet mine in India in April.

APMDC intends to sell about 600,000 tonnes drilling grade 4.2 SG barite and 200,000 tonnes drilling grade 4.1 SG barite on an ex-Magampet barite mine/stockyard basis to Indian buyers over the next year.

It also plans to sell around 150,000 tonnes drilling grade 4.2 barite and around 100,000 tonnes 4.1 SG barite on an FOB India basis to buyers registered in foreign countries for one year.

Interested companies will bid for the right to mine and trade SG 4.1 and SG 4.2 grade Indian barite on an FOB India basis for a period of 12 months.

Indian bidders will quote for a minimum quantity of 100,000 tonnes of 4.2 grade at a reserve price of Indian rupee (INR) 5,000/tonne ($75/tonne) and 40,000 tonnes drilling grade 4.1 SG at a reserve price of INR 4,000/tonne ($60/tonne). International buyers will need to quote the FOB price for a minimum of 50,000 tonnes 4.2 SG barite and 25,000 tonnes 4.1 SG barite.

Fluorspar

In the fluorspar market, acid grade fluorspar (acidspar) buyers have reported little change in consumption levels, due to the ongoing slump in fluorochemical markets, as producers attempt to compete with low-cost supplies from China and elsewhere.

Prices for Chinese acidspar sank to their lowest point since Q2 2010 in recent months, as suppliers attempted to sell greater quantities into export markets as a result of the slowdown in domestic consumption.

Fluorochemical producers within Asia, mainly in India, are benefitting from a free trade agreement between the Association of Southeast Asian Nations (ASEAN), with reduced tariffs leading to deals being settled at low price levels, IM understands.

The Chinese New Year was expected to play a significant part in easing excess supply in a number of sectors, particularly in graphite and fluorspar, however, both stockpiles and pressure on materials have continued to build.

Fluorspar prices also weakened as demand for the mineral, most notably from the fluorocarbon sector, has suppressed hydrofluoric acid consumption, scuppering any hope of a near-term market rebound.

Graphite

Flake graphite trades within Europe have been bearing the brunt of excessive stockpiles in and outside of China as demand in major refractories end markets stagnates, resulting in producers selling heavily discounted material to keep cash flowing.

The excess in supply, which was expected to ease with trades resuming after the Chinese festival, remained unchanged as low growth rates in major end markets continued to keep recovery at bay, further building supply side pressure on prices.

A lack of refractories demand, particularly in China, has led to oversupply and the undercutting of prices, a situation which has spilled over into the European market, forcing prices down particularly in refractory grades.
Market sources have indicated that low demand for graphite and pricing volatility are likely to continue at least for the first half of the year.

Prices for refractory grade flake graphite 94-97% C, +100 -80mesh, (FCL, CIF Rotterdam) into Europe have been revised down to a range of $780-$850/tonne from the levels of $1050-$1150.

Flake graphite 94-97% C, +80 mesh, (FCL, CIF Rotterdam) prices into Europe have dec-
reased to $780-$850/tonne from $1,050-$1,150/tonne. Flake grap-hite 90% C, -100mesh (FCL, CIF, Europe) has been moved down to $500-$550/tonne from $600-$650/tonne previously.

Flake graphite 85-87% C, +100 mesh -80 mesh (FCL, CIF Rotterdam) fell to $450-500/tonne from $550-$600 previously.

Sources also told IM that prices remain under pressure as weak Chinese demand continues to outweigh production cuts by producers elsewhere.

The price trend for refractory grades has been relatively more volatile, with small flake and fines traded less due to higher production capacity and oversupply.

In amorphous graphite, price levels in China after the Lunar New Year holiday were recorded at levels a little lower than the previous year in order to encourage sales. With production expected to contract in H1 2016 owing to environmental restrictions and squeezing demand, supply-side pressure on prices is likely to ease, keeping them stable in the short term.

Rare earths

Prices of Chinese rare earths have started to rise on the back of stockpiling actions taken by the six largest rare earth groups in China following governmental indications, as 2016 exports show visible growth. 

The start of a recently-introduced governmental plan to build a domestic inventory of rare earths products led to a reduction of supply on the part of Chinese producers, which are moving part of their output into storage.

The intervention of the manufacturers, which was initiated at the end of March, has started to affect the market, pushing it upwards.

The price of Chinese praseodymium-neodymium oxide is now up to Chinese renminbi (Rmb) 260,000/tonne ($40,189), dysprosium oxide is up to Rmb 1.2m/tonne ($310,000), and terbium oxide up to Rmb 2.3m/tonne ($360,000).

According to the IM Prices Database praseodymium oxide is priced between $53-58/kg, dysprosium is at between $215-240/kg.

Exports in 2016 to date have meanwhile picked up speed. In March, rare earth shipments were at 4,343 tonnes, 114% higher y-o-y and 34% higher month-on-month (m-o-m). Q1 exports, at 11,596 tonnes, were up 109% y-o-y. The value of Q1 exports was up 38.3% y-o-y.

Magnesia

Evidence of Chinese oversupply and resultant price wars continued to be reinforced throughout April. Market leader RHI reported it had been operating at below capacity at a number of its plants. The company said it was likely to further adjust its fused magnesia (FM) output if low prices in the sector persisted and opt to instead purchase the refractory raw material on the external market. 

The company additionally incurred a loss of €84.8m in the raw materials sector, which included impairments amounting to €23.2m related to the FM production in Porsgrunn, Norway – necessary due to "the persisting decline of Chinese fused magnesia prices". 

Slow economic growth in emerging markets and a drop in weaker industrial production are likely to continue to keep refractory raw material prices low, including for FM, although RHI predicted that stricter environmental legislation in China could help to buoy magnesia prices in the medium term.

Overcapacity in the sector – with sources last month describing Chinese FM inventories as "full to bursting" – has led to intense price wars and undercutting, which has expanded beyond China.

The struggling refractories sector, magnesia’s single largest end market, consumed only 80% of production in 2015 and has left magnesia producers facing lower orders and weaker prices for their products. However, at IM’s MagMin 2016 conference in Dusseldorf, Germany held in April, delegates were told that consumption of magnesia-based chemicals was starting to increase at the same time as the refractories sector contracts, with chief drivers including flame retardants, agricultural uses, food and pharmaceuticals.

According to IHS Chemical, chemicals such as magnesium chloride, magnesium hydroxide and magnesium sulphate would experience demand growth of more than 2% per annum for the next few years and in the long term could help ease some of the pricing pressure the mineral is currently experiencing.

*Conversions made April 2016