Feeling the rub: Asian abrasives continue to challenge Western suppliers

By IM Staff
Published: Thursday, 22 February 2018

Cheap Chinese alumina has been undercutting abrasives prices and output in North America and elsewhere for several years, but recent supply restrictions in China could reverse this trend, as Industrial Minerals correspondent Rose Pengelly discovers.

Producers of mineral-based abrasives in developed economies are continuing to buckle under the strain imposed by rising competition from Asian suppliers.

Efforts by some of the leading global abrasives companies to upgrade their product portfolios and to offer more refined, processed abrasive materials have protected margins to some extent, but they have had limited success in slowing the encroachment of cheaper material, mostly from China.

Market observers say that the price competition from Asian abrasives is being felt most acutely in the United States and Canada.

"The China effect is strong and real in affecting North America," said Steve Cumming, an analyst with market research agency BCC Research, based in the US state of Massachusetts.

"Europe is a bit different, because the market there is fragmented by country. Russia supplies silicon carbide [SiC] grains to Europe, and China has no effect on this," he added.

According to the US Geological Survey (USGS), imports of mineral-based, manufactured abrasives from China have had such an overwhelming effect on the North American market that local suppliers have been forced to limit their production.

Trade figures compiled by the body show that China was the source of 84% of the crude fused aluminium oxide (alumina) imports into the US and 71% of SiC imports between 2012 and 2015.

David West, a USGS commodity specialist, told Industrial Minerals that this trend, which has been in evidence for a number of years, continued in 2017.

"The primary anecdotal effect I have observed is that domestic production does not appear to have increased for several years," he said.

The USGS reports on two primary producers – France-headquartered Saint-Gobain and US-based Washington Mills – which operate three plants in the US and Canada. "They primarily produce refined material to get the best market value from their product. Chinese producers, on the other hand, can produce both unrefined and refined products for export," West said.

Mineral abrasives have many uses, with fused alumina and SiC being among the most widely used manufactured varieties. Fused alumina is favored for grinding high-tensile strength materials, such as steel and iron, while SiC is primarily used to grind low-tensile strength materials, including aluminium, brass, copper and non-metallic substances.

Metallic abrasives, meanwhile, are primarily used in particle blasting and shot peening in industrial blast cleaning or for improvement of metal surfaces.

Garnet, a naturally occurring abrasive, has been almost completely replaced by manufactured abrasives in the grinding markets of developed economies and is now primarily used in water-jet cutting applications.

Figures from BCC Research indicate that the global abrasives market was worth an estimated $40 billion in 2017 and that the sector is projected to grow at a compound annual growth rate (CAGR) of 5.5% over the next five years and to reach $51.9 billion by 2022.

BCC’s Cumming says that there is no sign of the growth in Asian abrasive imports in North America slowing down.

However, new industry regulations in China, coupled with US government attempts to stall imports of Asian products into its domestic market, could shift global abrasives trade patterns.

Abrasives1  
Blast from the past: Synthetic emery is used to fade denim fabric for
making jeans.
Source: kphotographerrr, via Flickr 

US protectionism

Neither the USGS nor the US government has published figures detailing the apparent damage that Chinese imports are doing to the US abrasives industry.

Despite vehement rhetoric from US President Donald Trump about blocking trade with China that adversely affects his country’s manufacturers, including a threat to pull out of the North American Free Trade Agreement (Nafta), recent US government protectionist measures so far do not seem to have extended specifically to mineral abrasives.

Given that abrasives consumption in the US is heavily influenced by manufacturing activity - particularly in the aerospace, automotive, furniture, housing and steel industries - recent US government moves to repatriate manufacturing could have positive consequences for domestic abrasives demand.

It is still too early to see any results from of this policy, West said. "However, if we encounter an expansion of steel manufacturing and a resultant increase in innovation in the steel industry in the coming months, then I would expect some increase in demand for abrasives," he added.

The USGS is seeking to gather evidence of how US abrasives producers are adjusting to new trade policies, which in the case of a US exit from Nafta would affect the abrasives trade with Canada and Mexico.

"There is still no resolution in the Nafta negotiations, which is an area that will need to be researched since some [US abrasives manufacturers’] plants are in Canada," West explained.

USGS data showed that Canada was the second-largest supplier of crude fused alumina to the US after China in 2012-15, accounting for 7% of the total import volume, and was the leading supplier of metallic abrasives to the country over the same period, with a 35% market share.

The organization is also canvassing the US abrasives sector to determine how manufacturers have been affected by revised US tax legislation, announced in December 2017, which reduced corporate tax rates to 21% from 35%.

Financial analysts expect Trump’s tax reforms to boost corporate earnings by an average of 10% in 2018, with companies whose revenues derive mostly from the US and which do not have overseas assets (which are subject to new charges), expected to benefit most.

For Saint-Gobain and fellow French producer Imerys, both of which record a significant proportion of their overall abrasives sales in the US but get the majority of their abrasive revenues from the rest of the world, the tax changes could put them at a disadvantage to their US-based peers.

Alumina, fused, brown 95% min. Al2O3, FEPA F8-220 grit,
fob China, $ per tonne 
Abrasives2  
Source: Industrial Minerals

Abrasives3  
Cutting edge: Garnet’s use in many abrasive applications has been
phased out - today, it is mostly used for water-jet cutting.
Source: Kurt Bauschardt, via Flickr 

Cutting edge: Garnet’s use in many abrasive applications has been

phased out - today, it is mostly used for water jet cutting.

Kurt Bauschardt, via Flickr

A patchwork industry

The global abrasives industry has always been, and continues to be, highly fragmented. According to BCC Research, no single producer currently commands more than a 5% share of the market.

"Global consolidation is difficult and no market consolidation is expected in the near to medium term. No player is attempting this, either," Cumming said.

End-users of abrasives, including both coated and bonded products, tend to be regional and small scale, and Cumming thinks that the industry could become even more fragmented.

"Price points play a vital part in users selecting products. The cost of establishing a new small-scale unit for coated abrasives is minimal, [and the market’s] barriers to entry are very low," he told Industrial Minerals.

He also pointed out that professionals who have worked with larger companies in the abrasives industry often leave to start their own smaller units, using their basic manufacturing know-how and customer contacts.

Cumming’s latest analysis showed that 35 leading abrasives companies generated revenues ranging between $100 million and $1 billion last year. These included Imerys and Saint-Gobain, along with French alumina producer Alteo and the US’ SiC producer Washington Mills.

Imerys, the world’s leading producer of fused minerals for abrasives, does not disclose total or regional sales volumes for its fused minerals division for competitive reasons. But company’s financial presentations last year indicated that roughly one-quarter of its high-resistance materials sales, which include fused minerals, were to North America.

The company told Industrial Minerals that the fastest expanding market for abrasives globally is the automotive sector, which is expected to show strong growth this year, along with energy applications.

"Car manufacturers and their suppliers use significant quantities of abrasive grains in numerous grinding operations, and [in the energy sector, they are widely used] in the production of gas turbines and wind turbines," a company spokesman said.

Imerys will not discuss its commercially sensitive research and development work in detail, but the company did tell Industrial Minerals that it is putting considerable effort into expanding its abrasives portfolio around a high-performance abrasive grain, produced using the sol-gel process.

The sol-gel technique is a method for producing solid materials from small molecules. First developed in the 1800s, it is used for the fabrication of metal oxides, especially those of silicon and titanium.

Cumming also noted that the development of new sol-gel-based grains, which are slowly gaining market share, has been one of the defining technological trends in the abrasives industry.

But innovation in the sector is typically sluggish, partly because of its high level of fragmentation but also because, according to Cumming, its product and technology market is "mundane and well-established."

"Companies that are championing [new] technologies are betting on the reduction in lifetime costs for abrasive product end-users, despite the fact that the upfront costs are higher," Cumming explained in his latest report. "These [novel products] have long-term influences in the marketplace, and market penetration of these technologies occurs downward from the high-value end applications."

Abrasives4  
US President Donald Trump’s recent corporate tax reforms could
benefit US abrasives companies, although international businesses
based in the country could lose out from new fiscal and proposed
trade arrangements.
Source: Cage Skidmore, via Flickr 

Rough times for Australian abrasives

Outside North America, other producers of abrasive minerals are also struggling in ambivalent market conditions.

In Australia, Perth-headquartered Australian Abrasive Minerals (AAM) went into administration in August 2017, resulting in the suspension of the Harts Range garnet mine, 200km northeast of Alice Springs in the country’s Northern Territory, just a year after the project went into production.

AAM, which had been producing garnet primarily for the blast-cleaning and water-jet cutting markets, did not spell out the reasons for its collapse. Administrators for the miner, KordaMentha Restructuring, said that AAM did not have the cash necessary to ramp up to the mine’s (undisclosed) nameplate production, having already absorbed tens of millions of Australian dollars during its development, since 2010.

Harts Range was one of only two active garnet mines in Australia - the other being GMA Garnet’s facility at Port Gregory, Western Australia - and one of just five such mines globally.

KordaMentha said in September last year that, given the strategic value of Harts Range, it was seeking to gather as much information as possible on the project for the benefit of possible future investors.

So far, there have been no further public updates on the fate of the mine, which remains on care and maintenance. Nobody connected with the matter was available to comment to Industrial Minerals.

Abrasives5  
Garnet has a Mohs hardness of 6-7.5 and has long
been established as a natural abrasive.
Source: iStock 

Indian, Chinese abrasives

The closure of AAM came despite disruption to global garnet supply caused by bans on beach sand mining in the Indian state of Tamil Nadu, one of the largest sources of garnet abrasives.

India’s Ministry of Mines is currently debating legislation covering beach sand mining and exports, while reports of illegal mining, which many believe may be contributing to price erosion, remain rife.

As well as garnet, India is also a significant producer of alumina abrasives, such as synthetic emery, although much of the country’s output is consumed domestically, rather than making its way onto global markets.

Dharmendrasinh Mahedu, managing director of Western Abrasive Industries, based in the northwest Indian state of Gujarat, said that demand for his company’s abrasive synthetic emery is strong locally and in emerging markets.

"Our synthetic emery is still widely used [as an abrasive], but only in developing countries," Mahedu told Industrial Minerals. "In developed countries, it has found new applications, for example as a floor hardener for making anti-skid, non-wear, heavy-duty industrial flooring."

While natural emery is comprised largely of corundum, Western Abrasive produces synthetic emery grains by processing bauxite.

Synthetic emery has become increasingly popular as a substitute for the natural mineral in abrasive applications, as it yields a better surface finish.

"This is due to the uneven grit sizes that are present in the natural form," Mahedu explained. "This was corrected by the synthetic method that produces grit of uniform size and greater hardness."

Western Abrasive sources its bauxite from mines around 100km from its manufacturing facility in Ahmedabad and produces around 10,000 tonnes per year of finished abrasive materials.

Its synthetic emery is mainly used in flour millstones, anti-skid flooring, metal-grinding applications, and sand blasting. One of the major uses for emery sand blasting is in fading denim fabric to make jeans.

Despite largely favorable market fundamentals, Mahedu said that some markets for synthetic emery are in decline. "Flap wheels and abrasive belts have replaced synthetic emery [in many applications]," he told Industrial Minerals.

"But, gradually, people are coming back to synthetic emery. This is because flap wheels and abrasive belts are made from brown alumina, which is above 9 on the Mohs scale and is therefore harder than synthetic emery, which comes above 8 on the Mohs scale. So, during buffing, it is very difficult to remove the lining of alumina, which gets very deep [into the surface being finished], whereas synthetic emery lining is easy to remove."

For Western Abrasive, the main risks to its business are fluctuations in its costs – principally those of raw materials and electricity – which in the past have made a difference to whether the company’s products are competitive with Chinese imports or not.

However, a recent crackdown on pollution by the Chinese government - coupled with restrictions on the use of explosives for mining, both of which have affected bauxite production and the processing of abrasive-grade alumina - has reduced availability and pushed up the prices of Chinese abrasive materials.

The USGS’ West thinks that, if these supply restrictions in China continue, it could shift the balance of the global abrasives trade.

"China has begun implementing environmental controls on some of its heavy industries," he told Industrial Minerals, "so [the trend of imports out-competing North American abrasives] may slow down or reverse in the future. I would keep an eye on this."