The merger of Austria-headquartered RHI with Brazilian rival
Magnesita helped it to secure about 70% of its dolomite and
magnesite supply, even though RHI was forced to divest its
long-held European dolomite business in order for the deal to
be approved, writes Rose Pengelly.
The global refractories industry has undergone significant
change in the past five years. Increased competition from Asian
refractories producers, falling specific consumption in steel
and cement making, tightened environmental regulations and
complications in sourcing raw materials have all had an effect
on the sector.
One of the most obvious responses to these trends has been a
rise in consolidation, with manufacturers seeking to pool
costs, expertise and supply chains to stave off operating
The largest merger seen in the refractories industry in
recent years was the tie up between Austria’s RHI
AG with Brazilian competitor Magnesita Refratarios, announced
in October 2016. The deal was estimated to be worth $500
million and to create a business with annual revenues exceeding
€2.5 billion ($3.1 billion).
Given that various market analysts estimate the value of the
global refractories industry at around $23 billion, the merger
amalgamated a significant chunk of the market.
Rather than being a consequence of tougher market
conditions, those behind the mega-deal argue that the creation
of RHI Magnesita, the name by which the merged entity is now
known, was a natural next step for the two businesses.
"Historically, refractories was a very
Consolidation… is a quintessential part of
Reinhold Steiner, chief sales officer,
"Historically, refractories was a very regional industry.
Consolidation was one of the growth drivers and is a
quintessential part of our DNA," Reinhold Steiner, chief sales
officer at RHI Magnesita, told Industrial Minerals. "If you
look back into our history, RHI Magnesita has roots in more
than 20 separate companies… This strategic combination
is built on many complementary aspects and expands our
competitive advantages across the whole value chain."
Meshing together two giant refractories businesses with vast
global supply chains and customer networks is no mean feat.
After 10 months of intensive integration, Steiner says that RHI
Magnesita finally started to deliver on its merger goals at the
end of October 2017.
Among these were the ability to better manage cyclicality in
the refractories industry and to attain greater control of raw
To gain approval for the merger from the European
Commission, however, RHI was ordered to divest some of its raw
materials operations, including the entirety of its long-held
dolomite business in the European Economic Area (EEA).
Meanwhile, Magnesita was instructed to relinquish the
production and sale of magnesia-carbon bricks in the EEA.
The contribution to revenue from these two businesses
amounted to roughly €100 million in the 2016 financial
year and represented around 3-4% of the combined
group’s pro forma revenue.
"It is always a tough decision if a company has to divest
important assets, market share and revenue. However, we…
are convinced that the complementary nature of the combined
group and strong dolomite product portfolio of former
Magnesita, including [its] dolomite mines - such as the York
mine in the United States - enable us to offer our customers an
even broader range of products and services," Steiner said.
"The first immediate area for synergies is purchasing, where
we have made substantial progress due to the combination. Our
teams are also working to establish the best possible
production and supply chain network and thus transferring
products to the most suitable sites in the wider network," he
"This will lead to further productivity and capacity
improvements, lower logistics costs and better customer service
due to greater customer proximity," he said.
Better value from bolt-ons?
Large merger and acquisition (M&A) processes, such as
the RHI Magnesita deal, can rapidly reshape the refractories
landscape and help to extend a company’s reach
into territories fiercely guarded by competitors.
But some are skeptical about the ultimate value of such
major transactions, which typically incur large consultancy and
legal costs that take time to pay off.
Customers are also generally wary of M&A deals, because
they fear reduced competition and weaker bargaining power,
ultimately leading to higher prices for products.
Refractories industry observers, who preferred not to be
named, told Industrial Minerals that intra-regional bolt-on
acquisitions tend to be more efficient from a transactional
point of view, but are regarded with similar suspicion by
"When a large company picks up a smaller one to bolster its
presence in a particular product area, this often involves a
price rise for the customers of the smaller business, and can
lead to a reduction in the range of products on offer, because
the bigger parent company will often cut a few marginal
[product] lines," one sector consultant said.
A recent example of a mid-size regional M&A deal in the
refractories industry was France-headquartered industrial
minerals giant Imerys SA’s takeover of French
speciality cement maker Kerneos for an estimated €880
million in 2017, to form a new division, Imerys Aluminates.
At the small end of the scale, France’s
Saint-Gobain High Performance Refractories announced in
December 2017 that it had acquired, for an undisclosed sum,
US-based Spin-Works International, a niche manufacturer of
3D-printed and extruded silicon carbide ceramic components that
improve energy efficiency in high-temperature industrial
Even RHI Magnesita did not get everything it felt it needed
through its merger and, in November 2017, the company acquired
Sweden’s Agellis Group to expand its expertise in
sensor and measurement technology.
While some customers bemoan the apparent contraction of
choice in the refractories sector, proponents of the trend say
that M&A gives buyers access to a greater range of products
from a single supplier, and the benefit of enhanced research
and development (R&D).
They add that such tie-ups are vital if manufacturers are to
weather the industry’s challenges. They also say
that we should expect to see more of these deals.
"We believe that the refractory industry is facing further
global consolidation, which will be especially strong in
less-developed regions and markets such as Asia and
particularly China," RHI Magnesita’s Steiner
This view was echoed at this year’s India
International Refractory Congress (IREFCON) meeting in Delhi
earlier in March, where chairman Parmod Sagar outlined the
knowledge-sharing benefits of M&A.
"There is a lot of consolidation going on in the
international refractory market and we are looking forward to
[learning] the best technical practices from our global
counterparts to cater to the needs of our key customer
industries," Sagar said.
He also pointed to the rising cost of refractory raw
materials, which IREFCON calculates have increased by an
average of 18% over the past two years.
Sagar said that while consolidation can reduce exposure to
mineral price volatility, refractories companies in
import-dependent nations such as India would benefit from more
investment in domestic mining of refractory minerals such as
magnesite, non-metallurgical bauxite and alumina and graphite,
to help boost supply security.
merger with Brazilian rival Magnesita helped it to
secure about 70% of its dolomite and magnesite supply,
even though RHI was forced to
divest its long-held European dolomite business
for the deal to be approved.
British refractories and Brexit
Others have rejected the lure of major inorganic expansion.
In 2014, UK-listed Morgan Advanced Materials rejected a
£2 billion ($2.8 billion) bid from rival British
refractories maker Vesuvius. Morgan claimed that
Vesuvius’ all-share offer undervalued the business
and would expose its shareholders to Vesuvius’
low-margin iron and steel refractories arm.
Both companies performed well as separate units in 2017,
thanks largely to a revival in global steelmaking. But
according to one industry expert, both Morgan and Vesuvius may
come to regret the decision not to merge if the UK fails to
reach a satisfactory trade deal with the EU following its exit
(Brexit) from the political and economic bloc.
"Some of the products [that Morgan and Vesuvius] make rely
on raw materials and components that cross the [English]
Channel several times before the finished item is sold," the
expert told Industrial Minerals.
"Both companies have large overseas operations and
vertically integrated supply chains, but their European
business could get more complicated. They might have found it
easier as a single large company," he added.
The British Ceramic Confederation (BCC), which represents a
cross-section of UK industries, including refractories
companies, has said that Brexit offers UK manufacturers
important opportunities, such as a chance to develop a "more
carrot and less stick" alternative to the EU’s
Emissions Trading Scheme, which it feels unfairly penalizes
It has, however, warned that UK ceramics producers face a
significant export gap if the country’s current
customs union trading relationship with the EU is not
"With 50% of the [UK ceramics] sector’s exports
sold to the EU, we need to ensure an adequate and comprehensive
tariff- and barrier-free UK-EU trade settlement," BCC said last
year in a policy paper aimed at the UK government.
A spokesman for BCC told Industrial Minerals that, before
the referendum on the UK’s membership of the EU in
June 2016, around 75% of its members were in favor of remaining
in the EU.
"We have now shifted our focus to making Brexit work for our
members on our key issues of energy and trade. Poor UK trade
remedies, import tariffs into the EU and regulatory divergence
would all be unwelcome," he added.
RHI mines and produces magnesite
products in Austria where it has three
mines (in Breitenau, a joint venture with
Martinswerk, and in Hochfilzen and Radenthein),
in Turkey (in Eskeisehir), in Italy (in Marone),
Ireland (in Drogheda), in China
(in Dashiqiao, Liaoning - another JV) and in Norway
Magnesita has projects in Belgium, the US, Brazil
Pressure on policymakers
Refractories producers both in the UK and the EU have called
for strong, coherent industrial strategies in their respective
jurisdictions, which they say are vital to ensuring that their
operations remain competitive with other global suppliers.
In February, Cerame Unie, the industry association
representing European ceramics producers, including refractory
materials, presented the European Commission (EC) with a paper
co-authored by representative bodies of other European
industries, outlining the need for "an ambitious EU industrial
According to Cerame Unie, measures needed to support
European refractory ceramics makers include provision of a
business-friendly environment, improved access to skills and
training, more research and innovation, better access to
finance, and reform to international trade.
In the US, another major producer of refractory materials,
tough talk by Republican President Donald Trump about
protecting US industry has not so far translated into any
specific strategy and direct legislation for refractories.
But US refractories producers are expected to benefit from
the country’s December 2017 reduction in corporate
tax rates to 21% from 35%, and could potentially receive a
boost from the recently announced import tariffs on steel and
aluminium, if this leads to the intended increase in domestic
The unpredictability of the Trump
administration’s trade policies is, meanwhile,
causing consternation in other parts of the world, particularly
among UK and European refractories exporters.
"The UK refractories sector is very export-driven, so the
uncertainties that exist around our future trading environment,
both in terms of Brexit and the Trump
administration’s approach to international trade,
are very important," the BCC told Industrial Minerals.
Access to raw materials
Reliable supply of good-quality raw materials has been a
concern for refractories makers for a number of years.
The removal of Chinese export quotas and taxes on certain
refractory raw materials, such as magnesia, resulted initially
in a surge of supply on the international market (export
volumes in 2017 rose by 94.1% year-on-year to 653,528 tonnes)
and a corresponding decline in prices.
But a pollution crackdown affecting sintering plants, and
restrictions on magnesite mining in 2017, coupled with an
uptick in demand, caused availability to tighten and prices to
rise - a situation that posed particular problems for major
importers such as India.
RHI Magnesita’s pooling of resources has
alleviated some, although not all, of its raw material
"The availability of our own raw materials is crucial and
enables us to guarantee our customers consistently high product
quality. [We now supply more than 70% of our own] basic key raw
materials, namely, dolomite and magnesite," Steiner told
The group now produces around 50% of all its raw material
needs, he added, but still depends on Chinese supply to make up
"The dramatic increase in the market prices of several key
Chinese commodities, especially smelting and sintering
magnesia, has naturally weighed heavily on our cost structure
in recent months. In order to further increase the backward
integration of these raw materials in the future, we restarted
our raw materials plant at Porsgrunn in Norway, which recovers
the highest-value fused magnesia from seawater," Steiner
The European Refractories Producers Federation (PRE) has
said that the European refractories industry "is heavily
dependent on imports of refractory industrial minerals" and
that "the supply situation… is particularly critical for
high-grade magnesia, bauxite and graphite, which are mainly
sourced from China."
PRE, through its various national associations, is
continuing to lobby the EC for decisive action under its Raw
Materials Initiative, which critics say has so far done little
beyond outlining a list of raw materials that are critical for
Although China’s latest policy decisions have
proven to be a headache for importers of Chinese raw materials,
Steiner points out that there are some potential long-term
benefits to the international refractories industry, which has
long complained about the market being flooded with cheap
Chinese refractory products.
"Recent actions by the central Chinese government have led
not only to significantly lower availability of magnesite raw
materials but also to higher requirements on environmental,
health and safety topics, and thus to higher costs for Chinese
producers," he told Industrial Minerals.
This, according to Steiner, means that the cost structure of
Chinese refractory manufacturers is now developing closer
toward the international average, thereby levelling the playing
field for foreign competitors.
Tackling challenges with technology
To cope with, and even benefit from, some of the challenges
facing the refractories industry, manufacturers are investing
significant sums in new technologies and adapting the way they
do business to stay abreast of changing trends.
RHI Magnesita, which has a 270-strong research and
development (R&D) team, and BCC members have highlighted
the importance of "full service offerings" as a way of
insulating their businesses from uncertain trade policies and
the effect of falling specific consumption of refractories,
while processes such as steel- and cement-making become more
"Our full-service offers to clients are already facing high
demand in developed countries and are becoming popular
globally," Steiner said.
Efficiency is also a major driver of technological advances
in refractories, with pressure mounting on the sector to
decarbonize and to become greener all round.
"A particular area of innovation [among BCC members] is
around energy-saving refractories that help to mitigate the
environmental effects of high-temperature processes," BCC told
RHI Magnesita, which operates 35 main production sites
across 16 countries, faces the challenge of complying with a
complex patchwork of local and international environmental
regulations, all of which are becoming tighter.
"[As a leader in the international refractories industry,]
we are required not only to comply with all given standards and
to work with local authorities, but also to define new ones
globally," Steiner said.
"When looking into the environmental legislation of the
different countries, one can see that there is still a
significant gap in individual national environmental standards.
Whereas the EU already has ambitious levels, we can now see a
drastic change in legislation in Asia," he explained.
Recent policy developments and tougher environmental
regulations in China have led to very strict limits for
nitrogen oxide and sulfur dioxide pollutants, among others,
that are emitted from factories. Many refractories plants are
also being forced to switch from running on coal to using
natural gas instead, and to install scrubbers to clean flue
As with other industries, the refractories
industry’s efficiency drive is being boosted by
digitization. "We believe that products themselves, but
especially processes, machinery and the supply chain, will get
smarter in the long run," Steiner said.
"With the use of big data," he added, "we can help our
customers to better predict maintenance and re-linings, reduce
downtimes and also improve their production processes.
Furthermore, the steel industry especially is experiencing a
strong trend toward fully automated mills."