Liaoning province on the border with North Korea in
northeast China has some of the richest magnesite resources in
the world, with reserves estimated at 3.25bn tonnes and
production capacity of around 10m tpa. The main deposits are
located around the Haicheng and Dashiqiao area of Anshan and
Haicheng produces raw magnesite while Dashiqiao has a number of
facilities for processing refractory magnesia products.
These two regions are home to nearly 100 magnesite mining
companies and 500 businesses involved in the magnesium supply
chain. Collectively, they produce 5m tpa caustic calcined
magnesia (CCM), 3m tpa deadburned magnesia (DBM) and 2m tpa
fused magnesia (FM).
However none of these companies rank in the top 10 global
magnesia producers, since the Haicheng and Dashiqiao magnesium
industries are made up of small and medium-sized businesses,
engaged in fierce competition and price wars.
According to Guodong Zhang, director of the Liaoning
Nonmetallic Mineral Industry Association, despite weak demand
for refractory magnesia in China, many of the larger
corporations are still managing to accrue significant
Smaller companies are being targeted for consolidation by
the association, which is pursuing government-backed policies
to upgrade Liaoning’s magnesia supply chain and
protect the local magnesite resources for the largest companies
with the most sophisticated mining and processing
Efforts to reform Liaoning’s magnesia industry
have been hindered by a dysfunctional local political system,
which is mired in corruption allegations. In September this
year, state investigators exposed an electoral bribery scandal
– the first case of its kind since the Chinese
republic was founded in 1949.
This political dysfunctionality has bled into
Liaoning’s economy. In the first half of 2016,
Liaoning was the only province in China to register a
contraction in its economy, while the average GDP growth in the
rest of China was 6.7%, according to official statistics. The
province’s debt-to-GDP ratio by the end of 2015
stood at 158%, one of the highest in the country.
Census data shows that the population of Liaoning fell by
90,000 in 2015, the first decline in 17 years, as economic
migrants left the province to work elsewhere in
The political and economic situation in Liaoning has
deterred private investment in the province and this has been
felt acutely in the magnesia industries of Haicheng and
Dashiqiao. Whole swathes of Yingkou city, which incorporates
the district of Dashiqiao, lie deserted. This includes recently
constructed international hotels and the city’s
Average wages for workers in Liaoning’s magnesite
mines and processing plants are around Chinese renminbi (Rmb)
3,500-6,000 ($517-887*) per month, however competition from
other, less dirty industries makes it difficult for magnesia
companies to attract staff.
|The Howard Johnson
Hotel, where the last China Magnesia Expo was
held, lies in the barren hi-tech development zone in
Yingkou. Behind it is a completely deserted community,
known locally as Yingkou’s "ghost
Liaoning's magnesia industry
Depending on detailed product specifications, the size of
orders, delivery terms, quantity, export quotas and licences,
export prices for Liaoning magnesia can vary by up to $50/t
Export taxes on CCM, currently stand at 5%, whereas DBM and FM
are both subject to export duties of 10%.
Dashiqiao-based Hongyu Refractories Co., one of
Liaoning’s largest refractory magnesia exporters,
expects export prices for magnesia may rise by up to $20/tonne
over the next few months owing to a sharp rise in the cost of
coal, used to fuel furnaces and kilns at processing plants.
Coal prices have been increasing since the middle of this year,
when the Chinese government imposed a 276-day working limit on
mines in order to reduce oversupply.
New resource taxes have also had an impact on the cost of
magnesia production in Liaoning, as well as higher wages and
freight charges, owing to new trucking regulations cutting load
limits from 50 tonnes to 40 tonnes. The aim of the regulation
is to reduce damage to roads and also to encourage more use of
However, other companies doubt whether magnesia producers will
be able to pass on higher input costs to customers. Jinding
Magnesia Group, also based in Liaoning, told IM that prices
rises may not be accepted by buyers, particularly given the
weak state of the refractories business.
|Acceptance bills like the
one shown above are used
by Chinese state-owned companies to withdraw
from domestic banks to pay bills to suppliers.
normal circumstances, applicants can expect to
the in six-to-12 months. If the money is needed
companies have to pay high interest rates. Such
can be passed down the supply chain as
however this leaves the supplier at the bottom of
chain facing a lengthy wait for payment.
Loss-making and highly leveraged steel companies, the biggest
consumers of magnesia refractories, have been delaying payments
to suppliers. An upturn in the steel market since the second
quarter of this year has improved trading conditions, but
significant steel mill overcapacity has kept a lid on any
significant recovery in refractories. Demand for cement
refractories is stronger than steel, but represents a much
DBM and FM are used almost exclusively in refractory
products. CCM has a wide range of end use markets and benefits
from an export tax rate half that of DBM and FM, so industry
observers are generally more positive about the CCM market than
for other types of magnesia.
Slowing domestic consumption of Chinese magnesia and preferable
international payment terms are pushing more material onto
export markets. Dashiqiao-headquartered Fenghua Industrial Co.,
a leading FM producer, told IM that whereas domestic sales used
to make up 70-80% of its business, the same proportion is now
accounted for by exports.
In line with the Chinese government’s
industrial development policy, fewer and fewer companies are
exporting raw magnesia with most now shipping higher margin
finished and semi-finished refractory products instead. Qinghua
Group, the biggest magnesia company in China, which used to
export magnesia now consumes all of its raw material internally
to produce refractories, most of which is shipped abroad.
Export quotas and licences
In order to protect domestic mineral resources and limit
exports of low value raw materials, the Chinese government
imposed export quotas and licences on magnesia around two years
Magnesia companies have to bid twice a year in government-run
auctions to receive allocations, although to date these export
quotas have not been used up, prompting speculation that the
system may be cancelled (see p8).
Recent World Trade Organization rulings have forced China to
cancel export quotas for rare earths, fluorspar and some
metals, and some believe that there may be a similar decision
on magnesia in the future.
But some Chinese magnesia producers disagree, arguing that
the removal of policies aimed at controlling magnesia supply
will lead to a race to the bottom as producers flood the market
with material. Some companies are also reluctant to give up a
lucrative trade in selling on their quota allocations and
licences to rival businesses.
According to market sources, the going rate for a tonne of
magnesia quota is currently around Rmb 450/tonne
*Conversions made November 2016