World refractories industry: State of play in 2016

By IM Staff
Published: Monday, 22 August 2016

Jessica Roberts assesses the health of the refractory industry’s key consumers so far in 2016, and outlines longer term trends that look to influence the market this year and beyond.

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 (%)

Jessica1  

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)

Jessica2  

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