|Attendees of this
year’s MagMin field trip to several magnesia
plants inspect a recent
batch of fused magnesia at the warehouse of Liaoning New
Development Refractory Group
In the second quarter of this year, spot environmental
inspections by Chinese officials, coupled with restrictions on
the sale of dynamite, delivered a shock to
Liaoning’s magnesia companies.
The resulting shortage of magnesia supply from
Liaoning, the world’s main magnesia-producing
region, caught both domestic and international magnesia
consumers off guard.
Speaking in July at IM’s
annual MagMin Conference in Dalian, northeast China, Guangqi
Han, Deputy Director of Liaoning’s Special
Industrial Resource Protection Office, reassured worried
delegates that the shortage would "not continue for long".
He said that the inspections that had forced magnesia plants
to halt production were intended to reduce pollution and
encourage downstream development in the magnesia supply chain
and were not designed to permanently limit raw material
China’s rapid economic development had been
achieved at the cost of heavy pollution, Guangqi said, adding
that the country was now focused on value-added manufacturing
and on balancing industrial growth with environmental
The Chinese government has been promising wide-ranging
environmental reforms for several years, but measures
implemented to date have tended to be reactionary and
piecemeal, creating significant uncertainty and confusion among
the country’s basic industries.
"It won’t take long [to come up with a plan]
because domestic steel companies won’t allow [raw
materials shortages] to happen – they need to produce
normally," said one Chinese MagMin delegate.
|In Dalian port, Liaoning, cargo is
loaded onto ships. Views over the harbour are
restricted by the thick smog which hangs over the
But while China’s government is rarely backward
in announcing policies, it has a poor record of putting them
into practice – especially in its natural resources
"A decision might be easy to make, but its execution is
difficult," an official from the Liaoning Provincial
Association of Nonmetallic Mineral Industry told
"There are so many magnesia companies that any plan to
control total output won’t be easy to realise. The
magnesia industry is not like the rare earths industry, which
has been consolidated into six major companies after years of
painful regrouping and M&A, guided by central and local
governments," they added.
Although most of those involved in China’s
magnesia industry are confident that the supply shortage will
be short-lived, officials have so far not committed to
lifting production restrictions and frustration is mounting.
"What the government has said is useless and completely
bureaucratic; it doesn’t solve any problems,"
complained one Chinese producer on the sidelines of MagMin.
"The government has showed up [to this conference] to show that
they are taking this seriously, but still they
don’t have any answers."
|Fused magnesia of normal grades
stored in the warehouse, Liaoning New
Development Refractory Group
Environmental inspections have been blamed for multiple
supply disruptions throughout China’s mining and
industrial sectors over the last few years.
For the magnesia industry, this year’s round of
checks has been the most disruptive to date.
Dashiqiao, which lies around 230km north of Dalian, is home
to more than 600 magnesia companies. Collectively, they account
for around 44% of the region’s GDP and for almost
all of the grey dust that permanently coats buildings and trees
the region’s towns and villages.
Local residents have broadly welcomed the closure of
Dashiqiao’s magnesia plants.
"When the inspection teams arrived from Beijing, they put up
posters in every village near the factories offering rewards
for reporting polluting activity," one Dashiqiao-based magnesia
producer told IM.
In the past, local authorities tended to turn a blind eye to
residents’ complaints, afraid of losing tax
revenues if facilities were shut down.
The arrival of central government representatives put an end
to the cover-ups, although when IM visited
Dashiqiao in early July, most factories were back in
While many industrial companies, including manufacturers of
magnesia refractory bricks, have been forced to switch to
natural gas for their power generation, most magnesia producers
continue to use coal.
New bolt-on equipment is being used to remove sulphur and
nitrates from magnesia factory emissions, but many are
reluctant to invest the significant sums required to completely
replace ageing coal furnaces.
Industry participants blame the prolonged period of price
weakness in magnesia products for their lack of cash to invest
in technology upgrades, while those that have upgraded are
struggling to pay back their investments.
"The worst situation is for the refractory brick companies
– they have annual contracts with steel companies,
meaning they can’t raise prices easily, even when
the cost of raw magnesia increases," explained a spokesperson
for Dashiqiao-based Zhongjian Refractory Co.
|Despite the environmental reforms,
dust and air
pollution is still an issue in Dashiqiao, attendees
at this year’s MagMin event found, while
Domestic sales trump exports
Recent developments in China’s magnesia and
related industrial sectors have resulted in Chinese companies
opting to sell products domestically, rather than to export
Previously, sellers had preferred the latter category due to
higher prices and favourable international payment terms, which
meant sellers received letters of credit for their goods for
cash within two months, rather than being forced to accept
long-term credit agreements from Chinese customers.
But the revival in Chinese steel production last year has
boosted domestic magnesia prices and accelerated payments from
local buyers, as rising demand for refractories encouraged
steel companies to pay upfront to secure supply.
This has led to a shortage of magnesia in international
markets, as foreign buyers trading on letters of credit are
losing out to Chinese buyers making cash deals. Multinationals
with operations in China have been able to protect their own
supply, but non-vertically integrated businesses have had
trouble securing deliveries, even when offering to pay higher
"Buyers in China got especially nervous about supply of
high-quality fused magnesia (FM) and started turning up at
factories with briefcases of cash to make sure they got a
deal," one Chinese delegate at MagMin told IM.
"Even then, they weren’t guaranteed an immediate
consignment of material and might have to wait until the next
batch of products came out of the kiln."
|Close up of a husk of large
crystalline FM stored
in the warehouse, Liaoning New Development
Rising demand for magnesia from Chinese steelmakers
coincided with the imposition of government restrictions on the
use of dynamite in the domestic mining industry.
The government’s reason for the embargo on
dynamite sales was that blasting indiscriminately targets both
low and high-grade ores, allowing mining companies to pick out
the best quality material from the rubble while leaving the
lower grade rock in waste dumps – an approach which
officials argue is an inefficient use of resources.
The blanket ban, which has not been widely reported, has
affected producers of all minerals which use the blasting
According to Weishun Sun, an engineer in the mineral
research department of the Anshan Industrial Institute at
Liaoning’s Technology University, low inventories
of magnesite ore meant that magnesia supply was quickly
"If the dynamite problem continues, refractory magnesia
plants will soon have to shut down again," he told
"Without dynamite, miners are being forced to use electric
drills, either manually or machine-operated, to break up the
rock. This takes much more time than using dynamite and is
not sustainable," he added.
Recently, restrictions on dynamite seemed to have been
relaxed. Although there has been no official announcement,
staff at the 150,000 tpa Yonghong magnesite mine in Dashiqiao
reported being able to buy dynamite, although it was not clear
whether the largest magnesite mines in the neighbouring
Haicheng region, which produce 1-1.5m tpa, have also been able
to resume blasting.
"Usually mining companies have an inventory of
200,000-500,000 tonnes magnesite, which provides a bit of a
buffer, but these stockpiles will not last forever," one
government official in Dashiqiao told
China has amended its export taxes on several minerals in the
past few years, with varying effects.
In 2013, it was forced to scrap a 15% tax on fluorspar
exports after it lost a World Trade Organization (WTO) case the
previous year, in which the European Union claimed the tariff
violated free trade rules. Surprisingly, the removal of the tax
had very little effect on prices or export volumes for Chinese
However, a similar WTO ruling against 5-10% taxes and quotas
on Chinese magnesia exports last year caused prices of caustic
calcined magnesia (CCM) and dead-burned magnesia (DBM) to drop
21%, while those for FM fell 14% immediately after the
restrictions were scrapped in January 2017.
Meanwhile, magnesia export volumes rose year-on-year (y-o-y)
in January, by 59% for CCM, 144% for DBM and 168% for
Magnesia prices have continued to fall over the course of
the year and shipments have risen further, although the recent
squeeze on domestic supply has slowed the pace of these trends
and even prompted a slight recovery in export prices.
The reason China’s fluorspar trade remained
broadly unmoved by the cancellation of export taxes is largely
due to the actions of the Chinese Fluorspar Commission, a
national industry body which moved swiftly to adjust prices
upwards to compensate for the removal of the tariff.
In the absence of a similar powerful organisation in
China’s magnesia industry, when trade tariffs were
removed, individual companies were quick to flood the market
with their products in an attempt to grab market share,
dragging down prices.
Many in China’s magnesia industry, including
the Liaoning Magnesia Association, are not optimistic about the
chances of unifying the sector.
The Association told IM that this is because most Chinese
magnesia companies are small and scattered, using primitive
technologies and are permanently locked in local price
Others have pointed out that corruption in the sector is
rife, with companies paying local officials to gain
exemptions from environmental standards, rather than
investing in their businesses.
Liaoning’s magnesia industry is concentrated in
two places: Dashiqiao in Yingkou and Haicheng in
Dashiqiao has fewer magnesite resources but more processing
companies than Haicheng. Some industry participants think that
the Haicheng government will soon consolidate its magnesia
producers and restrict shipments of material to Dashiqiao in a
bid to build up its local processing capacity. Such a move
would likely devastate Dashiqiao’s local magnesia
beneficiation industry, which relies on raw material from
"If Haicheng’s government does this, the
Dashiqiao government will definitely retaliate, but it will not
be good for the industry," warned one Dashiqiao-based
The Dashiqiao government has been quick to play down the
risk. "If Haicheng tries to restrict magnesite supply to other
places, neither the local nor the national government will
allow it," one a local official Dashiqiao told
However, the biggest magnesite producer in Haicheng,
state-owned Haicheng Magnesite Refractory General Factory
Co., has announced plans to take control of all the magnesite
mines in Haicheng, said to account for a third of the total
magnesite resources in China, with the backing of local
government and private investors.
Industry observers warn that, if a ban on transporting
magnesite to Dashiqiao follows, it will lead to a surge of
smuggling activity and black market trading of the mineral.
While China’s government continues to lurch
between industrial and environmental policies,
Liaoning’s magnesia companies are doing the best
they can to keep their businesses afloat.
Zhongjian Refractory Co., a magnesia brick producer based in
the Dashiqiao Economic Zone, has 500,000 tpa semi-automated
magnesia brick production capacity and currently exports 25-30%
of its output.
The company is due to add a further 50,000 tpa fully
automated magnesia brick capacity later this year.
Its raw magnesite costs have doubled from Chinese renminbi
(Rmb) 1,500/tonne ($223/tonne*) to Rmb 3,000/tonne ($446/tonne)
in the last few months. So far, Zhongjian Refractory has
resisted passing on price rises to its customers, preferring
instead remove some products from sale until raw material costs
come back down.
According to the Dashiqiao Special Industrial Resource
Protection Office, there used to be 90 magnesite mining
companies in Dashiqiao, but these have gradually been
consolidated into just 15.
Five of them have capacities of around 100,000 tpa capacity
– which is large for the region – while the
remaining 10 are significantly smaller.
Mining in Dashiqiao stopped for some time during the dynamite
restrictions, but Yonghong Magnesite Mine, one of the
region’s leading producers, said it managed to
resume dynamite purchases in early July.
"Now the government requires mining companies to make use of
both the low and high grade ores – this involves a
high stripping ratio and ultimately reduces overall magnesite
recovery, which will further exacerbate the current shortages,"
a spokesperson for Yonghong told IM.
Some companies are looking to tackle the issues affecting
Liaoning’s magnesia industry through technical
innovation. Xinwei Environmental Protection Technology Co., a
subsidiary of Chinese conglomerate
Fenghua Industrial Group, has patented a DBM production
technology which uses large size calcination kilns to produce
Traditional DBM kilns are around 20 meters high and six-10
metres diameter, but Xinwei’s models are as high
as 47.5 meters with an outer diameter of nine metres and inner
diameter of three meters. According to the company, this new
kiln is more energy efficient – using less coal and
operating at lower temperatures than old style kilns –
and produces lest waste and minimal dust.
"The kilns are sealed and have built-in dust collectors,
which reduces their air emissions," the company told IM. "Raw
materials are usually mixed manually before they are put into
the kiln, requiring 50 workers for just one kiln. Our approach
is digital, so it takes just 30 workers to operate four
Fed with magnesite from both Dashiqiao and Haicheng, the
design capacity for each kiln is 80,000 tpa, but at present the
kilns are producing at a rate of around 150-160 tpd while any
kinks in the technology are ironed out. The DBM produced in the
kilns is above 93.2% magnesium oxide (MgO) on average, with
silicon (Si) content of 2.3% and calcium (Ca) of 2%.
Another Dashiqiao business, Jiemei Co., has been developing
new ways of producing CCM for more than 20 years and holds
seven patents for its processes. In response to rising demand
for CCM in non-refractory applications, Jimei has recently
expanded its main factory, which now operates six kilns,
producing 150-200 tpd of CCM.
"We are the only magnesia company recycling carbon dioxide
(CO2)," a spokesperson for the factory told
IM. "Making one tonne of magnesium carbonate
can produce one tonne of CO2, which is then normally discharged
into the air. Our process is sealed, so we can capture the gas
and recycle it into liquid or dry ice, which we can then sell
for Rmb 7,000/tonne ($1,039/tonne) – much more than we
can get for CCM."
Such innovation is encouraged by the Chinese government, but
is currently having little impact on Liaoning’s
wider magnesia industry, which remains oversupplied and
dysfunctional. It remains unclear how the government will
move next in its effort to control the magnesia industry and
it will probably take the intervention of a major sector such
as steel, which relies on magnesia refractories, to spur
*Conversions made July 2017