China is proceeding at full steam in its programme to rid
the country of highly-polluting and obsolete industrial
practices in a bid to improve the environmental footprint of
its operations with the focus of local authorities now shifting
As IM reported earlier this week, local
governments in Liaoning province – the main magnesia
producing area in the north of the country – have sent
inspectors to knock on the door of every magnesia producer to
ensure their operations comply with pollution regulations.
Anshan and Haicheng have been the first two cities in
Liaoning to be inspected. In Ashan, some 64 companies are due
to receive a visit by the environmental task forces over the
next several months. Those that are found in breach of
regulations face hefty fines or temporary shutdowns to their
In Haicheng, where all local magnesia processors have been
checked by now, there are 95 companies operating 1,700 magnesia
kilns in the city. Of these, 142 kilns were shut in January as
a result of the inspections.
Industry sources are now wondering whether this may be the
start of a process comparable to what was seen in bauxite and
alumina last year, when continuous shutdowns led to shortages
of bauxite for alumina refineries, which in turn severely
curtailed supply to market.
Many of the regulations listing strict emission targets for
industrial operations have been in place since 2012, although
in practice they were not acted upon. This changed in early
2016 when, in a highly-publicised first string of inspections,
the Chinese government set off on a widespread clampdown that
continued throughout the year.
The government needs industrial operations to be run on
natural gas, rather than coal in order to cut pollution levels.
Many facilities found to be still operating with coal as their
primary energy source have been forced to close.
In Xinmi city, in Henan province, the municipal government
said in December that 85
local refractory factories were shut during 2016. Over the
past two years, a total of 2,300 highly-polluting coal
down-draft kilns were dismantled in the district.
From the summer months of 2016, a number of key
mineral-producing areas in China, such as Henan, saw local
operations inspected and, in the case of irregularities, shut
for over a month.
The anti-pollution checks continued and affected, among
others, output of brown fused (BFA) and
white fused alumina (WFA), leading to spot prices for both
commodity groups to increase towards year-end.
Reverse effect on prices
In the case of magnesia, the consequences of enforcing
environmental policies may also come to affect market supply
and prices – potentially reversing the downtrend seen
since January, according to market participants.
In November, export quotas for Chinese
magnesia disappeared from the government list for 2017.
Then the state council approved an export tax adjustment on
partial products, including the cancellation of export
taxes on graphite, magnesia and magnesite.
This led to prices for most magnesia products –
caustic calcined (CCM), dead burned (DBM) and fused magnesia
(FM) – out of China to decrease sharply and,
in some cases, chaotically.
While CCM 90-92% MgO FOB China fell by $40/tonne, CCM 94%
dropped by as much as $180/tonne, and CCM 96% by around
$200/tonne, to mention only a few grades.
Market participants elsewhere have been watching closely the
developments taking place in China – which accounts
for about half of global magnesia supply.
When the quotas were not renewed, operators immediately
feared Chinese magnesia would flood the international market,
instigating price wars and oversupply. Sources told
IM at the time that China
may have had a high stock situation domestically, which it was
trying to ease by scrapping the quotas.
While prices from the country have indeed decreased, some
western participants said they have so far not seen the
dramatic knock-on effect they had first anticipated.
"I didn’t see many more sales running on the
market than before," a German-based source told
IM this week. "Some prices [into Europe] even
The inspection-related shutdowns may prove to be a spanner
in the works that could come to reverse the downward price
"With the closing of production plants […] this would
affect availability and push prices up again," the source
This view was echoed by other market participants, who
wondered whether – as it happened in alumina/bauxite
– the closures would affect output and lead to a
shortage of product.
IM has heard this week that some of the
large magnesia suppliers in China were starting to increase
their prices once again, in expectation of production cuts.
This claim remains unsubstantiated at the time of writing, but
it does point to a sentiment that is markedly different from
the bearish outlook that was first seen at the beginning of the