Dust and ashes: A picture of Liaoning’s magnesia industry

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 supply. 

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 protection. 

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 area.

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 sector.

"A decision might be easy to make, but its execution is difficult," an official from the Liaoning Provincial Association of Nonmetallic Mineral Industry told IM.

"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.

"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

Costly cleanup 

Environmental inspections have been blamed for multiple supply disruptions throughout China’s mining and industrial sectors over the last few years. 

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. 

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 operation.

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 visiting a suburb.

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 markets. 

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 prices.

"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 Refractory Group.

Dynamite restrictions

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 technique. 

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 squeezed.

"If the dynamite problem continues, refractory magnesia plants will soon have to shut down again," he told IM.

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. 

Export taxes

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 fluorspar.

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 FM. 

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 wars. 

Resource consolidation

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 Haicheng.

"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 producer. 

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 IM. 

Dashiqiao magnesia 

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.

Five of them have capacities of around 100,000 tpa capacity – which is large for the region – while the remaining 10 are significantly smaller.

"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.

Fenghua Industrial Group, has patented a DBM production technology which uses large size calcination kilns to produce the material. 

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 kilns." 

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."