Aachen ‘17: Raw materials, consolidation troubling refractory makers

By Davide Ghilotti
Published: Thursday, 14 December 2017

Small and medium-sized operators in the refractories sector are worried about additional pressures coming from two sides, as higher raw material costs come at a time when larger market participants get even larger through mergers and acquisitions (M&A).

Scarcity in the supply of raw materials and continuing consolidation are among the leading concerns for market participants active in refractories, Industrial Minerals heard as the industry got together for its annual gathering in Germany in mid-October.

At the 60th International Colloquium on Refractories, held in Aachen on October 18-19, delegates in conversation with Industrial Minerals highlighted how operators feel they are being squeezed by appreciating raw materials while, at the same time, the composition of the industry is evolving to have 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-discussed M&A activity this year included a merger of equals between Austrian refractory group RHI and Brazil’s Magnesita, which was due to be completed when the new company – RHI Magnesita – began trading on the London Stock Exchange on 27 October.

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

Aachen delegates told Industrial Minerals that the
industry was changing

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

RHI and Magnesita brought together a pool of more than 50 facilities globally, with strong presences in the Americas, Europe and Asia, as well as direct access to their own raw materials such as magnesia and dolomite.

For its part, Imerys, already one of the largest market participants, will be strengthening further its role in speciality cement end businesses, which require 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 [materials] and thus to operate fully."

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

"There are also opportunities for the smaller ones," another source said at the recent UniteCR 2017 refractories conference. "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 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 your own deposits, this can solve a few problems."

And then, of course, there is China.

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

Many markets where China is a main supplier are now facing shortages and higher prices, with a few examples being bauxite, alumina, magnesia and graphite. Shortages in these markets is creating a need for alternative sources, with indirect consequences for the supply chains of other minerals.

Delegates questioned where future supply will come from if China is unable or unwilling to supply the volumes it did in the past. In magnesia, its exports of CCM, DBM and FM exceeded 1 million tonnes per year.

In graphite, China accounts for more than 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 watch. 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 intended to facilitate a more orderly exploitation of deposits, ensuring longer mine lives.

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

As reported by Industrial Minerals throughout 2016, several bauxite mining operations and processing facilities have been shut, many of them permanently. With restrictions to dynamite use in mines, new production is intermittent. BFA availability is even shorter, pending Beijing’s continuing environmental inspections and deadlines given to companies.

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

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