The refractory industry has come to find itself between a
rock and a hard place, faced with challenges on the supply side
as well as in end markets.
While total demand for refractory products continues to
reduce in the face of readjusting steel output, production is
also moving downwards. For their part, suppliers cannot afford
to stand still but must innovate, revisit their current models,
relentlessly pursuing new markets and securing new
At the same time, a number of raw materials markets have
become increasingly short in supply: magnesia, alumina, bauxite
and graphite are only a few among several commodities affected,
with drastic effects on prices.
This is triggering a rise in sourcing costs, denting
refractory producers’ margins at a time of weak
Monolithic refractories are having an overall better ride
amid these tough times, compared with bricks and basic shaped
refractories, but the challenges for the industry are there for
all to see.
For its size and share of the global refractory industry,
China remains a barometer of the health of the sector.
China’s total production of refractory products
– this includes both shaped and unshaped materials,
as well as insulation and other products – stood at
23.91m tonnes in 2016, according to data from The Association
of China Refractories Industry.
This marks a drop of about 9% against the previous year,
when output was a higher 26.15m tonnes.
All segments suffered a decline year-on-year.
Dense shaped refractories, which is by far the single
largest category produced in China, lost over 1.2m tonnes
(-11%) worth of output in 2016, falling below 14m tonnes.
Fireclay base bricks and high-alumina bricks shared a similar
fate, decreasing by 11% and 13% respectively, to 2.84m and
2.03m tonnes. Si-based bricks output dropped 38% y-o-y to 1.17m
China’s refractories industry exhibited
substantial growth in the last couple of decades, moving from
just below 10m tonnes in 2000 to 32m tonnes in 2006, but
today’s numbers are far from that peak.
It was not that much better on the export front: 2016
exports of Chinese refractory products (excluding source
materials) were 5% down y-o-y.
The picture between segments is slightly mixed. While alkali
refractory exports rose 5% to 867,600 tonnes, Al-Si based
refractory exports fell 9%, to 662,400 tonnes. Shipments of
other materials, at 110,700 tonnes, were down 32% y-o-y.
Back in March, IM reported that 2016 export value of both
refractory products and source materials had reached its lowest
level for the past five years at $2.57bn, down 12% on 2015 and
23% lower than 2014.
Demand for refractory products as a whole has been dwindling
in recent years, mainly on the back of decreasing steel
production. Steelmaking is the single largest end market for
refractories, accounting for over 60% of end market demand.
Steel capacity in the western world has fallen, with
facilities shut all over Europe and North America. At the same
time China, which alone supplies over half of global output,
has been forced to reduce output, and plans to gradually shut
excessive capacity to bring the market back from
This crucially meant that, while refractory demand in Europe
fell due to local plants closing, Chinese demand also
restructured, and was not in a position to pick up the slack
created in the West.
India is arguably the sole destination where steel capacity
is still increasing, and one of the few markets where new
operations are being set up (see page 46).
This has created fierce competition among refractory
suppliers trying to elbow their way into the country. China
has a prominent position on the Indian market, not only due
to its logistical proximity. Some western suppliers are
trying to 'go local’ by teaming up with domestic
companies or setting up operations in the country to try to
bridge the geographical and cultural gap and gain real access
to the market.
Monolithics on the up
Amid falling demand in main end markets, the buying patterns
of refractory consumers are evolving.
With the widespread slowdown in steel output and weak
pricing conditions, end users have seen profit margins
shrinking. This has created an impending need for containing
costs while maximising performances.
This shift is behind falling demand for basic refractory
bricks, as more facilities move to monolithics.
While refractory usage globally remains dominated by bricks,
a process of substitution is nevertheless taking place, with
shaped products on the down and castables growing.
Currently, monolithics account for just over one-third (31%)
of the total market in volume terms, with the remaining 69%
share taken up by bricks, according to Calderys data released
at the IM Bauxite & Alumina conference in Miami in March.
Even within bricks consumers, the vast majority (72%) of
material consists of basic, magnesia and dolomite-based, brick
products, while 28% is in acidic bricks. Conversely, the
pattern of usage is essentially the opposite for monolithics,
where 68% is in acidic mixes, and 32% in basic mixes.
According to Calderys, substitution between bricks and
monolithics is "almost complete" in mature/developed countries
– where castable usage is put at 40-50% of the
In developing countries, meanwhile, monolithics have not
reached the same level of penetration, due to a number of
factors that support bricks. These include low cost of
labour, large availability of brick supply, and a lack of
skills and expertise in monolithics. This underlines a
long-term continuation of brick material usage in these
markets, which will persist in the foreseeable future.
Raw materials: getting shorter
If demand from end consumers has dampened profitability as
of late (due to a number of reasons which IM contributor,
Richard Flook, explains in detail on pp 36-44), refractory
producers have been struggling also with raw materials sourcing
China, a leading producer of refractory minerals, has seen
several of its key mineral production supply chains severely
curtailed by environmental inspections by local authorities,
amid an ongoing plan to curb the high level of air pollution
in the country’s most industrialised areas.
This is actually a continuation of a policy that Beijing
started in the first half of 2016. At that time, the clampdown
on polluting industrial operations had mainly affected bauxite
mining and brown fused alumina production (more on this
Since Q1 this year, environmental controls have intensified
and spread to virtually all mineral production operations that
are deemed polluting, as well as secondary processing and
The immediate effect of the controls has been the shutdown
of hundreds of operations in various provinces of China. In
some cases the closures were temporary, while companies updated
where possible their facilities to bring them in line with
regulations. In many cases, however, small-size, obsolete
operations were closed for good. Depending on the commodity,
this took a sizeable share of production off the market.
At the time of publication, local sources told
IM environmental teams are heading back to
areas they had already inspected for a second round of
checks. With elections in the ruling Communist Party due
later this year, Beijing is keen to continue its clean-up
action. It is early to assess the real impact this will have
on future mineral production and supply, but several markets
have been affected already, with lower output, falling
inventories and rising prices.
Bauxite and alumina
Bauxite was among the first materials to be hit by the
restrictions imposed by the Chinese government on pollution
thresholds and operating processes of companies.
It first started in Q2 2016 with the intention to clamp down
on illegal bauxite mining, which then added to
Beijing’s strive to put a stronger effort
towards environmental preservation. Facilities still relying
on coal as an energy source were forced to switch to natural
gas, or be closed. Shanxi and Guizhou were among the main
areas affected. By the end of the year, many bauxite
production operations had been shut for good.
Alumina, especially brown fused (BFA), suffered a similar
fate. Stricter anti-pollution checks in main producing
provinces of Shanxi and Henan hit production and started
lifting spot prices already in August last year, as
IM reported at the time.
Disruption to mining and production operations caused supply
shortages and supported high prices for both bauxite and BFA
well into the second half of this year. Securing volumes has
become extremely problematic for some grades, such as
high-purity bauxite 86%, 87% or 88%.
The bauxite shortage triggered a run for alternative
materials. Andalusite suppliers told IM that demand from
bauxite consumers has surged this year to date.
Unfortunately, this material is also short. Andalusite
production in both main origins – South Africa and
Peru – was slashed in Q1 by heavy rain and flooding
hitting mining areas. Many suggest 2017 supply will be
insufficient to cover existing contracts, let alone meet
demand from consumers who cannot find any bauxite.
The global magnesia market received a first shake in
December, when China unexpectedly announced the scrapping of
its existing duty regime and quota system for exports of
With hindsight, a first sign of the country’s
intentions could be seen from late October. When the government
announced the 2017 export quotas for all agricultural and
industrial commodities, magnesia did not make the list.
Authorities went quiet for a few weeks until they finally
announced that magnesia exports from 1 January would not be
subject to duties nor quotas.
According to the preceding regime, export tariffs were set
at 5% for caustic calcined magnesia (CCM) and 10% for both
deadburned magnesia (DBM) and fused magnesia (FM).
The industry’s immediate reaction was one of
widespread concern. Most market participants feared that a
no-duty regime would lead to Chinese sellers flooding the
international market with low-priced product, aiming to secure
whatever demand was left after a long period of weakness in
refractory end markets.
Confirming the industry’s fears to an extent, in
the first few months of this year Chinese FOB prices for all
magnesia products – CCM, DBM and FM –
The downtrend was short-lived, however. As Chinese
authorities tightened the controls over industrial pollution,
many magnesia operations were affected and had to shut. Unable
to produce, producers resorted to selling from stockpiles,
which rapidly decreased. As short supply became evident, prices
moved upwards again.
By early May, virtually all magnesia production facilities
had stopped and fused magnesia had become unavailable in
Liaoning province. Prices of all three products surged during
the summer months, exceeding pre-quota scrapping
It did not take long before the magnesia shortage came to
affect refractories end markets. In June, the Refractory
Industry Association of Yingkou, in Liaoning, recommended its
member companies to raise sale prices of magnesium-based
refractory products, to compensate for the rising raw
As it did with magnesia, Beijing also scrapped duties on
natural graphite exports, which were subject to a 20% tax until
last year. New offers for flake and amorphous graphite
decreased further as a result, despite several years of
weakness due to oversupply and low demand. It seemed that
another downtrend awaited.
However, the restrictions to mining eventually came to
affect graphite production as well. Environmental inspection
teams first reached Heilongjiang province, then Shandong.
Operations closed, and those that remained in business have
found it increasingly difficult to source quality ore.
Constraints to supply are starting to be felt, not least
because the limitations on chemical processing have restricted
acid-based graphite purification processes. Output of plus mesh
graphite sizes has been particularly squeezed.
So prices, which had fallen in Q1, picked up again in Q2
and, by August, posted further upticks. Graphite remains in an
overall better supply situation compared with bauxite or
magnesia, but sellers see further disruptions to availability
and aim to up their prices as a result.
All in, refractory suppliers are waging battle on various
fronts. Contingencies on the raw materials side mean sourcing
and production costs will remain higher for the foreseeable
future, while evolution in end markets will affect demand for
what products customers will want and how much of them they
will buy. Refractory suppliers need to brace themselves as
they see through a continuously-evolving scenario on both
ends, in the hope that the industry will eventually settle
and find a new normal.