The refractories industry has been in more or less steady
decline for the last five years and 2016 has seen no let-up in
the sector’s downward spiral. Refractories
consumption is tied to steelmaking activity, but when policy
interferes with macroeconomics, this relationship can break
down.
China, the world’s single largest supplier of,
and market for, refractories, has illustrated this
deterioration on a massive scale, as the
government’s commitment to reduce domestic steel
capacity has countered any support the recent uptick in steel
prices and production might have had on refractories
demand.
China’s economy grew steadily in the first six
months of this year, expanding at a rate of around 6.7%
according to official statistics – within the
government’s target range. As well as growing the
Chinese economy, the government wants to modernise it,
eradicating older, highly polluting factories in favour of more
efficient operations, leading to more profitable industrial
output.
The main drivers of steel demand in China are real estate
and infrastructure. Chinese fixed asset investment during the
first half of this year increased by 9% year-on-year (y-o-y),
including 21% growth in infrastructure spending. Automotive
sales, another major force for steel consumption, rose by 8% in
the same period.
Chinese crude steel production in January-June totalled
399.56m tonnes, according to World Steel Association
(worldsteel) figures, down 1.1% y-o-y. This represents a
significant narrowing of the y-o-y gap in steel output since
January, when Chinese monthly production was 7.8% behind the
same month in 2015. Many industry observers believe that China
has produced more crude steel this year than worldsteel data
suggests, based on suspicions that the government massaged the
figures down in order to appear to have complied with demands
from the international community to cut capacity and reduce the
flow of cheap steel onto an oversupplied world market.
The H1 2016 performance of China’s top
refractories companies had not been announced at the time of
writing, but there are signs that some manufacturers saw a
recovery in the six months to the end of June. More noticeable,
however, have been the price wars caused by overcapacity of
some refractory materials, cash flow problems and difficulties
in securing finance from banks.
The payments situation has become so acute that the China
Refractory Association recently advised its members to only
accept cash from buyers.
As with steel, increasing volumes of refractory materials
have been finding their way onto international markets in the
last five years, driving prices down. Apart from the general
problem of oversupply in China, one of the main reasons for
this trend is that international trade terms mean Chinese
refractory producers receive prompter payments from export
customers than they do from domestic buyers.
However, in the first half of 2016, export volumes of all
major refractory materials with the exception of alumina have
fallen y-o-y, suggesting that even international demand for
cheap Chinese refractories is ebbing.
Chinese first half refractory materials
exports/imports %
change y-o-y
|
Fused magnesia (FM)
|
↑ 10%
|
↓ 10.39%
|
Dead burned magnesia (DBM)
|
↑ 2%
|
↓ 12.09%
|
Caustic calcined magnesia (CCM)
|
↓ 9.4%
|
↓ 7.61%
|
Silicon carbide
|
↓ 5.2%
|
↓ 5.45%
|
Alumina
|
↓ 30.1%
|
↑ 11.57%
|
Alumina (imports)
|
↓ 7.4%
|
↓ 30%
|
Bauxite (imports)*
|
↑ 13%
|
↓ 9.65%
|
|
*Mainly metallurgical-grade bauxite from Australia,
Malaysia
and Guinea but includes refractory-grade material from
Guyana.
Source: China Customs
|
Innovating out of depression
Dashiqiao, known as the Capital of Magnesium, in Liaoning
province, northeast China, is home to around 800
magnesium-related companies and has a total magnesium
production capacity of more than 10m tpa and with sales of
approximately Rmb 850m ($128.1m). Around 60% of Dashiqiao
magnesium is exported and 40% is sold domestically.
The area around Dashiqiao city has a long history of
magnesite mining (See pp48-55). Like other
resource-reliant cities in China, Dashiqiao is facing the need
to transition its traditional raw materials industry to a
modern one. Demand for magnesium and magnesia in China is
slowing, prices are low and there is fierce competition among
suppliers.
Dianhui Xu, secretary of the Dashiqiao Municipal Party
Committee, says that the city needs to invest in new
technologies and in developing new products in order to weather
the tough market conditions.
During China’s 12th Five Year Plan,
which ran from 2011 to 2015, Dashiqiao embarked on an ambitious
transition plan, with 1,000 companies pledging to invest in
innovation and plant upgrades. The city’s local
government signed cooperation agreements with more than 13
universities and research institutions, including the Qinghai
Salt Lake Research Institute of Chinese Academy of
Sciences.
To date, several Dashiqiao magnesium companies have emerged
as leading enterprises in their field, establishing a number of
brands, patents and six product quality benchmarks which have
since been confirmed as national standards for materials
including agricultural magnesium sulphate and magnesia-carbon
brick.
According Dianhui, producers of traditional magnesia
refractories have successfully developed new technologies,
including a process for using low grade magnesite to produce
fused magnesia (FM). The technique, engineered by Dongji Group,
claims to reduce unit consumption of energy in standard
furnaces from 2,900 kWh/tonne to 2,500 kWh/tonne. Other
Dashiqiao-based refractories companies, including Fenghua
Industrial Group, Xinwei Refractory Co. and Yingkou Jinlong
Refractories Group, have also launched new techniques for
making magnesia refractories which they say use up to 35% less
energy and emit less pollution.
|
Production of fused magnesia in
Dashiqiao, Liaoning.
|
Moving away from refractories
Some companies in Dashiqiao have taken the view that
magnesite can be turned to more profitable uses than
refractories and have switched their focus accordingly. Yatai
New Building Material Technology Co. used to produce magnesia
refractories but three years ago it switched to making
magnesium-based building materials instead.
The niche in the market Yatai has sought to fill is an
alternative to traditional outer wall insulation materials,
which are highly polluting to produce and which generally
perform inefficiently. It invested Rmb 380m ($57.23 m) in
reorganising its manufacturing operations and in developing
magnesium-based building materials that do away with the need
for external thermal insulation.
As well as opening up new sales opportunities for Yatai,
which holds 36 patents for its magnesium construction products,
this switch also saved the company 70,000 tpa of thermal coal
to power its factory and 178,000 tpa of subsequent carbon
dioxide and 590 tpa of sulphur dioxide emissions, as well as
1.6m tpa of solid waste, including low-grade magnesia, for
disposal.
Dashiqiao has also become a hub for magnesium chemicals
production, as former refractory producers diversify into this
area. The city has 11 magnesium fertiliser producers, each with
a capacity above 500,000 tpa, led by Yingkou Magnesite Chemical
Industrial Group, the biggest single producer of sulphate
magnesium fertiliser in the world.
Other companies are branching into magnesium alloy
production and the Dashiqiao government has expressed its
intention to support manufacturers to begin producing magnesium
alloy plates for use in aviation, military applications and
automotive.
Environmental protection
Like other industrial cities in China, Dashiqiao has pledged
to cut its pollution and improve its efficiency.
Since announcing its environmental policy towards the end of
the last Five Year Plan, the city has dismantled 83 kilns for
producing caustic calcined magnesia (CCM), 19 FM kilns and 29
DBM kilns, according to official statements.
Companies like Yatai have adopted natural gas as their main
energy source in place of coal, while Anshan Aohai Refractory
Co. has invested Rmb 30m ($4.52m) in dismantling its old
electric melting furnace and dust collector and building 32
state-of-the-art FM furnaces.
But while the global refractories industry remains under
pressure and magnesia prices continue to decline, persuading
Chinese companies to invest in cleaner technologies and
diversified product portfolios is challenging.
Western refractories companies continue to complain that the
higher environmental and labour standards they adhere to sets
them at a disadvantage against low cost Chinese competitors.
While there are some signs that China is moving towards parity
with their Western peers, it is clear that there is still a
long way to go.
*Conversions made August 2016