Aachen ’17: Raw materials, consolidation troubling refractory makers

By Davide Ghilotti
Published: Friday, 20 October 2017

Small and medium-sized operators in the refractories sector are worried about new pressure coming from two sides, as higher raw material costs come at a time when competition from large players getting larger through M&As.

Aachen 2017 trade show 01 Tanu  
The refractories sector gathered in Aachen for the
60th edition of the International Colloquium.

Scarcity in the supply of raw materials and ongoing consolidation are among the leading concerns at present for players active in refractories, IM heard as the industry got together for its annual gathering in Germany this week.

At the 60th International Colloquium on Refractories held in Aachen on 18-19 October, attendees in conversation with IM highlighted how operators feel they are being squeezed by appreciating raw materials while, at the same time, the industry is evolving in its composition with fewer, and bigger, companies.

"On the one hand you have raw materials that are getting more expensive and shorter on the ground," one attendee commented. "On the other you have large players joining forces, which is also a cause of concern for reasons of competition."

The much talked-about M&A activity this year included the merger of equals between Austrian refractory group RHI and Brazil’s Magnesita, which is due to be completed as the new company – RHI Magnesita – starts trading on the LSE on 27 October.

The other main deal of 2017 to date was Imerys’ buyout of alumino-silicate cement maker Kerneos, which was concluded in July.

"Small and middle-sized players are worried they will feel new pressure after these takeovers," a refractory maker told IM. "Large companies getting larger means it will be harder to compete to secure deals."

RHI and Magnesita are bringing together a pool of over 50 facilities globally, with a strong presence in the Americas, Europe and Asia, as well as direct access to own raw materials such as magnesia and dolomite.

For its part Imerys, already one of the largest players on the market, will be strengthening further its role in the speciality cement end businesses, which requires large and consistent volumes of calcined bauxite, among other materials.

A second delegate said: "[As large companies expand further,] it could mean that, at times of shortage of raw materials, the smaller buyers are left dry, unable to source and thus to operate fully."

Others see a degree of opportunity in the situation, however.

At the recent UniteCR 2017 refractories conference, another source commented on this topic: "There are also opportunities for the smaller ones. While the big guys are busy integrating and getting their operations together, we can be faster to respond to customers and do business."

Either way, consolidation and vertical integration are also seen as crucial to secure stable access to raw materials.

Another delegate in Aachen said: "Only a year or so ago, not many were thinking this could happen and we would all suddenly run around to source material. Now it’s happening and [this issue] will be with us for some time.

"If you can cover your requirements through own deposits, this can solve a few problems."

Aachen 2017 trade show 02 Tanu  
Attendance was high this year, with over 500 delegates.

The Chinese affair

And then, of course, there is China.

The situation in the country as regards both aspects – raw materials and industry consolidation – is a major source of concern at the moment, IM was told at the German event.

Many markets where China is a main supplier are now facing shortage and higher prices. Some examples include bauxite, alumina, magnesia and graphite, to name a few. Shortage in these markets is creating a need to find alternative sources, with indirect consequences for the supply chains of other minerals.

Attendees questioned where future supply will come from if China is unable or unwilling to supply the volumes it used to. In magnesia, its yearly exports of CCM, DBM and FM were over 1m tonnes.

In graphite, China accounts for over 60% of global supply, and it has a major role in bauxite and fused alumina materials, particularly brown-fused alumina (BFA).

Consolidation in the Chinese magnesia industry is one development to look out for. Local governments in magnesia-producing areas are seeking to reduce the number of scattered players by setting up a government-controlled consortium of companies that will control mining output and processing. This is also aimed at facilitating a more orderly exploitation of deposits, ensuring longer mine lives.

Several local companies are said to have signed up to the initiative, although actual numbers vary widely depending on who you ask.

As reported by IM throughout 2016, several bauxite mining operations and processing facilities were shut, many of those for good. With restrictions to dynamite use in mines, new production is intermittent. BFA availability is even shorter, pending Beijing’s ongoing environmental inspections and deadlines to companies.

The current situation is unlikely to improve much in the coming months, according to sources, who cited the ongoing National Congress in Beijing, the imminent winter season during which mining reduces or is temporarily halted, and the Chinese New Year holiday period in early 2018.

"I have been going to church every day lately," one delegate quipped. "We look to 2018 and we hope."

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