The global refractories industry is in the midst of a
transformation as large-scale modernisation of production in
China – the world’s largest supplier
– increases pace. This longer term trend is occurring
just as China’s major refractory-consuming
industries in steel, cement and aluminium are showing signs of
slowing down.
China’s refractories industry has exhibited
substantial growth in the last couple of decades, increasing
from just under 10m tonnes in 2000 to 32m tonnes in 2006 (out
of a global total of 45m tonnes). Growth in the
country’s refractories industry occurred in
partnership with surging output from domestic refractory
end-users, and it is still the case that the majority of
refractories output in China is consumed within the
country.
During the economic downturn in 2009, output fell back to
24.5m tonnes but recovered again to nearly 30m tonnes in 2011.
However, since this time, Chinese output has steadily declined
and dropped to 23.5m tonnes in 2015, according to analysis from
Roskill Information Services. China’s
refractories industry is by far the largest in the world and,
as a result, it has had a significant impact on global
refractories output for a number of years. World production has
generally followed trends shown by the Chinese sector, dropping
from nearly 43m tonnes in 2011 to just over 35m tonnes in
2015.
Refractories production statistics are published by the
Chinese government but tend to overestimate the size of the
industry, possibly because of double-counting. However, the
general production trend is a good indicator for the health of
the sector.
Official Chinese statistics reported that output in the
first quarter of 2016 was nearly 4.4m tonnes, representing a
fall of 11.7% compared to the same period in 2015 (4.9m
tonnes). The greatest fall was in the production of monolithic
refractories, which dropped 20.4% to 1.3m tonnes in Q1 2016.
Output of dense shaped refractories was 2.9m tonnes –
representing a 7.7% decline – while insulating
refractory bricks increased slightly by 5.3% to 99,400
tonnes.
So far in 2016, Chinese production statistics indicate that
the sector is set for another year
of contraction.
|
Consumption of refractories by end
market, 2015 (%)
|
|
|
Source: Roskill Information
Services:
Non-metallurgical Bauxite & Alumina report,
9th edition, 2016
|
Trends in the refractories industry
The fall in global refractories production has been driven
by several factors. In the last 12 months, lower demand from
the domestic crude steel market has had a negative impact, as
the iron and crude steel sector is the largest end market
(see later). There have been other drivers impacting
on a longer term scale, however, including greater recycling of
used refractories and lower specific consumption of
refractories during application.
Refractories recycling has been practised for several
decades but has garnered more attention in some regions than
others. Europe has been at the forefront of recycling with the
main players including Horn & Co. Minerals Recovery
(Germany-headquartered), LKAB Minerals (UK), HARSCO (UK) and
REF Minerals (Latvia). A great deal of recycling is also
carried out internally such as by steel companies (e.g.
ArcelorMittal) and refractory producers (e.g. RHI).
While refractories recycling may have more impact on demand
for virgin refractory raw materials due to substitution, there
is also an impact on primary refractory demand. Most recycling
is of shaped refractories with the aim of obtaining coarse
aggregates for reuse in high-quality refractories – in
direct competition with virgin raw materials. However, industry
participants report that in-situ recycling of monolithic
refractories is becoming more common, which decreases the
amount of 'primary’ refractories that are
purchased from third parties. This may help to partly explain
the drop in Chinese production of primary monolithic
refractories in Q1 2016, which has defied the overall trend
over the last decade towards greater use of monolithics due to
the speed and ease of their installation.
The trend that has had one of the largest effects on Chinese
refractories demand and output, however, has been the move
towards lower specific consumption. In recent years,
consumption of refractories has failed to keep pace with rising
steel, glass and cement output. The reason for this is that
advances in technology and greater use of higher grade
materials, including high-alumina and magnesia-based
refractories, have reduced the specific consumption of
refractories in all industries.
The global average consumption of refractories per tonne of
crude steel is around 15kg/tonne at present, but there are
large variations regionally; in Japan this figure is closer to
7kg/tonne, while in China, Roskill estimates that
average consumption is around 20kg/tonne. In 2000, Chinese
refractories use in steel production was closer to 30kg/tonne
and was still as high as 23kg/tonne in 2008. Chinese
consumption of refractories in crude steel production has
typically been much higher than the global average, partly
because of the use of lower grade products with higher wear
rates. As Chinese production methods have modernised, its
specific refractories consumption has improved faster than the
global average.
Clay and magnesia continue to be the most widely used
minerals in refractories production but alumina in particular
has benefitted from the move towards higher quality
refractories through the trend to reduce specific consumption
of refractories in steelmaking. Speciality calcined alumina
producer Almatis estimated that in Japan, where steelmaking and
refractories technology are most advanced, the use of alumina
in refractories is around 1.3-1.5kg Al2O3
per tonne of steel. This compares to only 0.3-0.5kg
Al2O3 per tonne of steel in China.
Therefore as China’s steel industry modernises and
refractory product quality improves, the use rates of alumina
per tonne of steel are also projected to increase. This is
expected to occur despite an overall reduction in refractory
volumes consumed.
|
World production of refractories, 2000 to
2015 ('000 tonnes)
|
|
|
Source: Roskill Information Services:
Non-metallurgical Bauxite &
Alumina report, 9th edition, 2016
|
Crude steel reforms
The iron and crude steel industry is the largest consumer of
refractories, accounting for over 70% in 2015 according to
Roskill figures. Most of this (75%) is consumed in the
steel sector rather than in iron production. World production
of crude steel peaked at 1.66bn tonnes in 2014, having grown
steadily for several years since the economic downturn in 2009.
Between 2007 and 2014, global crude steel production grew by a
CAGR of 3.0%, with most of this increase concentrated in Asia
(namely China).
In 2015, for the first time in modern memory, crude steel
output contracted – dropping to just under 1.6bn
tonnes – as Chinese production fell back from 823m
tonnes a year earlier to 803m tonnes. This reduction was
primarily due to lower steel demand but was also partially
touted as a sign that China had successfully begun to eliminate
outdated steel plants. The reduction in global steel output
also combined with background refractory trends (e.g. specific
consumption), and consequently further drove down refractories
demand.
China’s State Council reported that some 90m
tpa of crude steel capacity was cut between 2011 and 2015,
while in the period out to 2020 a further 100-150m tpa is eyed
for closure. These numbers seem rather overshadowed by existing
installed capacity, which the China Iron and Steel Association
reported to be 1.2bn tpa in 2015.
Nevertheless efforts to cut back on steel overcapacity are
gratefully received, as such moves are required in order to
improve profitability for steel producers globally. In support
of these plans, the State Council has said that no new steel
projects will be licensed and that zombie companies –
those which have ceased operating but have not gone bankrupt
– will be closed.
The effects of these consolidation programmes are still
filtering through, but Chinese crude steel production between
January and June 2016 indicated that these curbs – in
tandem with lower demand and prices – were having a
slight impact. Output in the first half of 2016 reduced to just
under 400m tonnes, compared to 404m tonnes in H1 2015 (-1.1%),
according to the World Steel Association
(worldsteel).
This year-to-date reduction is likely to be wiped out in the
latter half of 2016; however, as year-on-year monthly
production figures have shown a steady increase. Chinese crude
steel output contracted in January and February 2016, but
showed year-on-year gains in the period between March and June
as steel mills came
back online.
As a comparison, EU crude steel production fell by 6.1%
year-on-year in the first half of 2016, and North American
output was down by 0.6% over the same period.
Non-steel refractories trends
After the iron and crude steel industry, the second largest
refractories market is the cement and lime sector, which
consumed over 10% of the total in 2015, according to
Roskill. World production of cement is estimated to
have totalled just over 4bn tonnes in 2015, representing a fall
of 2.5% on 2014 levels. The decrease in global production was
largely as a result of lower output from China, where
production is estimated to have fallen by over 140m tonnes
between 2014 and 2015. The next largest producer of cement is
India, which Roskill estimates produced 290m tonnes in
2015, followed by EU countries at 160m tonnes.
Chinese cement production appears to have recovered quickly
from its downturn in 2015, as output in the first half of 2016
rose by 3.2% year-on-year to 1.1bn tonnes. This should have a
corresponding boost in demand for refractories for cement, such
as those containing high-grade dead burned magnesia and fused
magnesia.
Production of non-ferrous metals is also a sizeable market
for refractories at about 5% of the total, with the largest
metal within this group being primary aluminium. China is also
the biggest producer of aluminium in the world, accounting for
52% of the 53.3m tonne total in 2015, according to
Roskill.
The aluminium industry has shown signs of contraction in
2016, with Chinese output down by some 1.9% in the first half
of the year, according to figures published by the National
Bureau of Statistics of China. On a global scale, the
International Aluminium Institute reports that world primary
aluminium production was 28.2m tonnes in H1 2016, a reduction
of 1.4% compared to the same period in 2015.
Outlook for 2016 and beyond
The state of play in the refractory industry’s
main end markets presents a mixed picture for 2016; crude steel
production is lower compared to the same period in 2015, but is
unlikely to remain down for the rest of the year. Cement
production appears to have recovered from a blip in 2015,
unless volumes reduce significantly in the second half of 2016.
Of the main industries, primary aluminium production looks set
to close out 2016 at a lower level than the previous year.
What are the implications for refractories demand? Barring
any significant increases in steel and cement production, the
slight gains seen in these sectors in 2016 are unlikely to
outweigh the overall reduction in refractories demand that is
expected to occur from the impact of long-term trends: namely
lower specific consumption and, to a lesser extent,
refractories recycling.
At the same time, the refractories industry within China is
also being affected by overcapacity and therefore from lower
profitability. While there may not be any substantial changes
to the sector in 2016, in the longer term it seems inevitable
that the reforms seen in the country’s steel,
aluminium and coal sectors will also be mirrored in the
domestic refractories industry. This could lead to greater
consolidation activity and the acquisition of small producers,
resulting in improvements in production capacity utilisation
and profitability. Greater merger and acquisition activity may
also occur in the rest of the world, as refractory producers
look to secure their positions during a period of lower
demand.
Contributor: Jessica Roberts, Senior
Analyst, Roskill Information Services, UK,
jessica@roskill.com