Chinese magnesia and refractories: The new normal

By IM Staff
Published: Monday, 22 August 2016

The Chinese economy is entering a transition from a primarily export-orientated economy to a more consumer-driven economy. At the same time, increasing debt, slower growth and excess production capacity are contributing to what has been labelled as the “new normal” for China. Richard Flook and Ian Wilson examine the effect of this on the Chinese magnesia industry and the Chinese refractory industry.

Table 1: Global resources of magnesite

Country

Resources 
(million tonnes)

% Resources

Australia

628

5

Brazil

862

7

China

3,439

26

North Korea

3,000

23

Russia

2,745

21

Slovakia

1,240

9

24 Other

Countries

66

9

TOTAL

13,031

100

Source: Ian Wilson 

China is the dominant global producer of magnesite, magnesia and refractories. In 2015 China was the leading producer of magnesia (caustic calcined magnesia (CCM), dead burned magnesia (DBM) and fused magnesia (FM)) with a production of 8.79m tonnes. The rest of the world (ROW) had an output of 4.53m tonnes, meaning China held a 66% share of the total global production of 13.32m tonnes.      

In addition, the country holds the largest magnesite resources in the world with 3.44bn tonnes (26% of the world’s 13bn tonnes).

China is also the leading producer of refractories with 26.15m tonnes, or 65% of the global production of 40m tonnes.

Magnesite (magnesium carbonate – MgCO3) occurs in two main types: macrocrystalline and cryptocrystalline.

Figure 1: Global resources of magnesite

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Source: Table 1

Global magnesite resources

Macrocrystalline (or sparry) magnesite hosted in carbonate rocks is fine to coarse-grained with crystals up to the size of several centimetres. Cryptocrystalline magnesite, which is hosted in ultramafic rocks (peridotite-serpentinite) and is also referred to as amorphous, is very fine-grained crystals in the range of 1–10µm.

Macrocystalline (sparry) type accounts for 93% of the resources and cryptocrystalline (amorphous) the remaining 7%.

Global resources of magnesite are 13bn tonnes from 30 countries, with six countries accounting for 91% and the remaining 24 countries for 9% as shown in Table 1 and Figure 1.  The top six countries all have resources >500m tonnes with China the largest, holding 3.44bn tonnes.    

Magnesite deposits of China

China has 26% of global resources of magnesite, with 90% occurring in Liaoning province, and all are macrocrystalline (sparry) types.   There are other macrocrystallline magnesite occurrences in Shandong and Hebei provinces. Cryptocrystalline (amorphous) magnesite occurrences are in Inner Mongolia, Xinjiang Uygur region, Gansu province and the Kamaudo deposit in Tibet.   

Figure 2: Four magnesite producing areas in Liaoning Province, China

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Source: Ian Wilson 

Puyang Refractories Co. Ltd (Tibet Hezhong Guangye) controlled the Kamaudo deposit’s holding company in October 2014. Tibet Hezhong Guangye is the majority shareholder (55%) with Huayin Group holding the lesser share (45%). The chemistry of the Kamaudo magnesite is very pure with MgO 48.47%, SiO2, CaO 0.55%, Fe2O3, Al2O3 0.02% and LOI 50.74%.  Magnesite resources are 120m tonnes with 57m tonnes recoverable reserves.  Huayin Group in Haicheng has a LPG high temperature shaft kiln for fused magnesia.   

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Figure 3: Magnesite mine in Haicheng, Liaoning.

The main four areas for magnesite mining and production in Liaoning province are at Dashiqiao, Haicheng, Xiuyan and Fengcheng (Figure 2). 

Most important is the Haicheng-Dashiqiao ore belt in Liaoning with a number of large magnesite and talc deposits. The Haicheng-Dashiqiao ore belt is about 100km long.  Typically the ore bodies have dimensions of 30-300 metres thickness and 200-2,700 metres length.  They are hosted by the Early Proterozoic Dashiqiao Formation which was formed within closed, locally evaporitic influenced, carbonate platforms and lagoons during the late stages of the 2.3-1.9 Ga old Eastern Liaoning rift system.  A genetic model based on field evidence, intensive geochemical and stable isotopic data provides that Mg rich dense brines percolated down from evaporitic pools along faults or fractures to carbonate rocks in the middle part of the Upper Dashiqiao Formation.   There the fluids metasomatised the carbonate rocks where they are superimposed on low permeable micaschists. Later the magnesite has been recrystallised during regional metamorphism and also some magnesite veins have formed during a later hydrothermal event. 

Figure 4: Split of Chinese magnesia grades 
in 2015 (%)

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Source: Industry sources and China data from CCCMC, 2015 

Production of magnesia in China 

The Chinese magnesia industry in 2015 was described as suffering "a great downturn with great difficulty in operation" and "a considerable number of enterprises stopped business". Contributing factors to the weaker international and local markets were the global macroeconomic downturn and, especially in China, the decline of the growth rate in the real estate sector and the depression in the iron and steel industry. Increased labour and environmental costs added to the weak financial results for the sector.

Chinese production of magnesia from magnesite in 2015 was 8.79m tonnes with a split of CCM: 3.94m tonnes; DBM: (3 grades: middle grade and high purity) 3.52m tonnes; and FM: 1.33m tonnes shown in Table 2 and Figure 4.  

In 2015 the three grades of DBM amounted to 40% of output with CCM at 45% of production and FM with 15% of magnesia production.

Chinese production of magnesite ore and magnesia has fallen each year from 2013 to 2015 with a 3% reduction in magnesia output in 2014 and a significant fall of 10.2% in 2015 (Table 3).

A number of Chinese magnesia producers have reported further production reductions in 2016. For example, DBM production in June 2016 was 16% below the previous month and 39% below June 2015. Increased stocks are forcing further downward pressure on prices.

Table 2: Magnesia products by grade in China in 2015

Grade

%MgO

Tonnage (million tonnes)

CCM

90 min

3.94

DBM

90 min

1.86

DBM - middle grade

95 min

0.65

DBM - high purity

96 min

1.01

(Total DBM  3 grades - 90, 95 ,96)


(3.52)

FM

97-98 min

1.33

Total


8.79

Source: Industry sources and China data from CCCMC, 2015


Table 3: Chinese magnesite and magnesia production 2013-2015 

Magnesite and magnesia

production (million tonnes)

2013

2014

2015

% change 2013/2014

% change 2014/2015

Magnesite ore

19.02

18.43

17.44

-3.1%

-5.5%

Magnesia






  CCM

4.22

4.28

3.94

1.4

-8.0%

  DDM (>90% MgO)

2.21

2.10

1.86

-5.2%

-11.5%

  DBM (>95% MgO)

0.83

0.74

0.65

-11.1%

-12.2%

  DBM (>96% MgO)

1.15

1.09

1.01

-5.9%

-7.0%

  FM

1.67

1.59

1.33

-5.0%

-16.4%

Total Magnesia

10.09

9.79

8.79

-3.0%

-10.2%

Source: Industry sources and China data from China Chamber of Commerce of
Metals Minerals & Chemicals Importers & Exporters (CCCMC), 2015

Global production of magnesia 

Global production of magnesia from magnesite in 2015 is estimated at 13.32m tonnes with a split of CCM: 5.37m tonnes (40%); DBM: 6.46m tonnes (49%); and FM: 1.49m tonnes (11%) shown in Table 4 with figures for China and the Rest of
the World. 

Table 4: Global output of CCM, DBM and FM in 2015 for 
China and ROW

Product

China

million tonnes

ROW 

million tonnes

Total 

million tonnes

% China

% ROW

CCM

3.94

1.43

5.37

73

27

DBM

3.52

2.94

6.46

54

46

FM

1.33

0.16

1.49

89

11

TOTAL

8.79

4.53

13 .32

66

34

Source: Industry sources and China data from CCCMC, 2015

Data for China is from various sources including China Chamber of Commerce of Metals Minerals & Chemicals Importers & Exporters (CCCMC) and China Non-Metallic Minerals Industry Association (CNMIA), which both produced reports in March 2016.

Chinese magnesia exports 

Exports of CCM from China increased by 10% in 2015 or by 9% after allowing for CCM transit exports from North Korea. Major increases came from exports to the US and Japan and to a lesser extent from exports to Indonesia. CCM exports to the Netherlands declined (Figure 5).

Figure 5: China CCM Exports 2008-2015 (tonnes) 

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Source: Richard Flook and Trademap

On the other hand, exports of both DBM and FM declined significantly (each down by about 20%) in 2015. The only major increase was in exports of FM to Russia, which increased from about 30,000 tonnes in 2014 to 50,000 tonnes in 2015. However, as FM capacity is increased in Russia it is expected that this export market will also decline in future (Figures 6 & 7).

Total exports of magnesia from China decreased 13.7% in 2015 to 1.07m tonnes with the top five exporters accounting for about 40% of total exports and 54 other companies accounting for the remaining 60% of exports (Figure 8).


Figure 6: China DBM exports 2008-2015 (tonnes)

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Source: Richard Flook and Trademap


Figure 7: China FM Exports 2008-15 (tonnes)

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Source: Richard Flook and Trademap


Figure 8: China magnesia export companies 2015 

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Source: CCCMC 2015


Chinese 2015 refractory industry 


In 2015 the output of crude steel, cement and flat glass industries in China decreased by 2.3%, 4.8% and 8.6%, respectively. The steel and cement industries had negative production growth for the first time in the past 30 years and 25 years, respectively. 

In particular, the Chinese steel industry as a whole was reported to have a negative operating profit to sales ratio of -1.25%. Capacity utilisation was estimated to be less than 70% and excess capacity was estimated to exceed 300m tonnes.

Chinese output of refractory products in 2015 was 26.15m tonnes, a decrease of 6.5% from 2014 and the total export and import volume of refractory raw materials was 5.164m tonnes, a decrease of 8.8% (Figure 9). 

The trends since 2000 of an increasing proportion of monolithic refractories and decreasing specific consumption in the steel industry (kg refractories/tonne of steel) continued in 2015 (Figure 10).

This capacity reduction and industry consolidation together with increasing environmental regulations and increasing or ongoing trade barriers to steel and refractory exports give a potential scenario for the Chinese steel and refractory industry to 2030 as follows:At present, China has over 300m tonnes of excess steel production capacity and this is forecast to grow as domestic demand decreases to about 650m tonnes or possibly lower by 2021 from its 2015 level of 705m tonnes. The Chinese government has a policy of reducing excess capacity by up to 150m tonnes and to consolidate production such that over 60% of the domestic market is supplied by the top 10 producers. 

Figure 9: Chinese refractory and steel production 2000-2015

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Source: World Steel Association and China Refractory Industry Association

The future production of refractories in China and the domestic demand for materials such as DBM and FM will mainly depend on Chinese steel production.The production of magnesia-based refractories in China declined by almost 15% in 2015 which was twice as much as the percentage decline in total refractory production.

Figure 10: Chinese refractory industry is decreasing steel 
specific consumption and increasing % monolithic production

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Source: Richard Flook

• Production to stabilise at about 700m tpa • China steel long term trends 

• Demand to stabilise at about 600-650m tpa 

• Exports to remain at about 50-100m tpa 

• Industry consolidation and concentration

• Increased industry production efficiencies

• China refractory long term trends 

• Similar industry consolidation and concentration, accentuated by:

• Continuing reduction in specific consumption (17 ’ 10-8 Kgs/tonne steel)

• Continuing increase in % monolithic production (40% ’ 50%)

Table 5: Chinese production of magnesia-based refractories 2013-2015

Magnesia refractory production

(million tonnes)

2013

2014

2015

% change 2013/2014

% change 2014/2015

Burned magnesia brick

1.04

1.10

1.01

6.2%

-8.1%

Chemically bonded magnesia brick

1.59

1.48

1.27

-6.8%

-14.0%

Unshaped magnesia products

1.31

1.41

1.31

7.7%

-7.2%

Other magnesia refractory products

na

1.08

0.73

na

-32.2%

Total

na

5.065

4.32

na

-14.7%

Source: Industry sources and China data from CCCMC, 2015

There are however a number of factors that could alter this projection. The Chinese government may seek to increase domestic steel demand by either monetary stimulation or by fiscal stimulation such as expanded infrastructure projects. This would allow the government to postpone potential industrial unrest from unpalatable job losses. In addition, India’s aspirational target of producing 300m tonnes of steel, an increase of about 200m tonnes, could easily be supplied from current excess Chinese capacity without the need to install new capacity in what has been a difficult environment in India for new steel projects. Even if this additional steel capacity is installed in India there is still an option to increase refractory imports (especially refractory bricks and shapes) from China. Under these conditions, the total domestic demand for refractories in China could reduce by about up to 32% and demand could stabilise at about 17-18m tpa (Figure 11).

Future Indian and Chinese Government policies may therefore alter the extent and timing of the anticipated decline to a "new normal" in the Chinese refractory industry but the trend is considered inevitable.

Figure 11: China refractory history and potential future

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Source: Richard Flook

About the authors

Dr Richard Flook has worked for both suppliers and consumers of minerals with global companies including, Steetley plc, Anglo American, Commercial Minerals (now Sibelco), Normandy Mining Ltd, Omya AG and Shinagawa Refractories.

Richard has been CEO, Managing Director & Director of Asian and Australasian companies. He has specialised in new business opportunities including strategic planning, trading, market development and acquisitions in the industrial minerals industry and has been involved in managing and developing mineral operations and businesses in Asia and Australasia.

Richard is a Fellow of the Australasian Institute of Mining & Metallurgy (FAusIMM (CP)), the Australian Institute of Company Directors (FAICD) and the Australian Institute of Energy (FAIE). He is a graduate of Sydney University (BSc First Class Honours, PhD) and the University of NSW (Master of Commerce).

Since commencing consulting in 2014, Richard’s clients have come from five continents. 

Dr Ian Wilson - Following service in the British Army, Ian gained his BSc (Geology) from Kingston (University of London) and MSc (Geochemistry) and PhD from the University of Leeds.   Following almost three years with IGS (now British Geological Survey) he joined English China Clays in 1974 and retired from Imerys in 2001.   Ian worked mainly as a geologist worldwide with ECC and also was General Manager of ECC do Brasil and Joint Managing Director of CEDESCA in Spain, both new kaolin operations.    He was Project Manager for ECC’s new GCC operations in Sweden and China.   

Since "retiring" in 2001, Ian has worked as an independent consultant involved in many industrial minerals including kaolin, ball clay, talc, barytes, special clays, halloysite, magnesite, calcium carbonate (GCC and PCC) and raw materials for ceramics, performance minerals and paper markets on a worldwide basis. He is also the author of numerous papers and articles on a range of industrial minerals.