Magnesia: market tightness continues to bite

By Davide Ghilotti
Published: Wednesday, 28 March 2018

Magnesia markets have been severely disrupted by the environmental measures undertaken by the Chinese government in 2017 and into 2018. Production at many sites remains shut in and there is a great deal of uncertainty as to when - and indeed whether - all sites will restart, Davide Ghilotti, deputy editor, discovers

Magnesia1  
iStock 

The magnesia market continues to be dogged by production issues in China in the early part of 2018, while restrictions that characterised the supply situation during most of last year remain in place.

Readers of Industrial Minerals should be familiar by now with the escalation of constraints affecting the supply side of the minerals market in China, which produces and exports several key refractory materials such as magnesia, graphite, bauxite and alumina.

In magnesia, China accounts for about half of global production. This has given the country a reference role in supplying producers of magnesia-based refractories, especially MgO-carbon bricks.

Throughout last year, however, sweeping inspections of facilities and a clampdown on mining and processing practices that were previously tolerated wreaked havoc on magnesia output from the country.

During the third and fourth quarters of last year, export volumes of the three main products – caustic calcined magnesia (CCM), dead burned magnesia (DBM) and fused magnesia (FM) – all showed declines compared with previous years, after a surge in the first half that followed the scrapping of an export duty previously applied on the materials.

Shortage of material sent prices to record highs, especially for high-grade DBM and FM into the beginning of 2018. As the markets enter the second quarter of this year, a number of factors that have squeezed supply and affected prices continue to be apparent.

Magnesia, dead-burned, 94-95% MgO, lump, FOB China, $/tonne 
Magnesia2  
Source: Industrial Minerals 

Raw material availability

Following a series of state-mandated mining limitations in magnesia-producing areas across China, such as Liaoning and Heilongjiang, local producers continue to face challenges in securing sufficient raw magnesite ore for processing.

This was seen throughout the second half of 2017 and affected miners and processing operations. As was the case in other minerals, mining was heavily restricted through a ban on dynamite blasting and, in some cases, even on pneumatic drilling.

At the same time, government-led teams carried out thorough inspections of processing plants to ensure that environmental norms were respected. Those that were found in breach were fined or shut down.

Restrictions to mining at magnesite sites remained in place as of early March. Local producers said that they were still unable to use dynamite.

This has created issues in sourcing enough high-grade raw magnesite, which in turn is directly affecting local companies’ ability to produce high-grade DBM, CCM and FM.

"Producers are having serious issues with quality of CCM, because availability of high-grade ore from mines is low. This means that those who use CCM as feedstock to produce FM would then find similar issues in their final FM products," a distributor said.

Another source active in magnesia trading said that specification issues are now being seen, particularly with Ca:Si ratios often said to be outside standard parameters.

Magnesia3  
Given the magnesia supply issues in China it is no wonder that
producers such as Greece’s Terna Mag are poised to fill the supply gap.
Terna Mag 

Consolidation plan dead in the water

The much-discussed plan to consolidate the fragmented magnesia industry in China, meanwhile, has made no tangible progress to date.

As it was originally laid out, two magnesia-producing districts – Dashiqiao in Yingkou, and Haicheng in Anshan – were planning to concentrate the magnesia supply chain, from mining to processing.

This is not dissimilar from what happened with the Chinese rare earths industry, where the idea was to create leading state-owned umbrella groups – the largest companies – and allow them to assimilate smaller operations, and to close obsolete or very small facilities.

This would give the state-owned companies effective control over mining, processing and trading.

But while the initiative made some progress following the first announcement in the second half of 2017, with several companies reported to have joined the group (the actual number varied, depending on who you asked), progress quickly seemed to stall.

Industrial Minerals understands that no real advance has been made on the plan to date. As a result, it continues to be a cause of concern, as well as annoyance, for local operators.

One market participant travelling to China said: "When I asked [local companies] about the consolidation, they just laughed. They don’t believe it’s happening."

At the same time, uncertainty about the issue may contribute to keeping prices high until some clarity is achieved in the matter.

Magnesia4  
Fused magnesia is increasingly hard to acquire in China, due to the
environmental shut downs. 

Market prices

Market prices for magnesia have shown diverging trends in early March, with the price of high-grade DBM increasing while the cost of low-grade material dropped.

The price of DBM 97.5% MgO lump increased to $1,100-1,400 per tonne fob China on March 6 from $630-740 per tonne in previous weeks, while the price of 94-95% MgO material rose to $680-700 per tonne fob China from $385-470 per tonne.

Still, soft demand for low-grade DBM caused prices of 90% and 92% material to fall. The price of DBM 90% MgO fell to $240-280 per tonne fob China on March 6 from $330-350 previously, and 92% MgO fell to $280-300 from $350-390 per tonne.

In some cases, FM prices also decreased from the peaks reached at the beginning of the year, although they remained higher than during most of 2017.

The spot price of FM 97% MgO (Ca:Si 1:1) dropped to $1,150-1,250 per tonne fob China in March from $1,400-1,600 per tonne previously, and 97% MgO (Ca:Si 2:1) fell to $1,250-1,400 per tonne from $1,600-1,800 per tonne.

Caustic calcined magnesia (CCM) prices remained stable. The 94% MgO fob China price held at $240-260 per tonne, 90-92% MgO stayed at $205-230 per tonne, and 96% MgO remained at $335-355 per tonne.

On the European market, prices remained firm while non-Chinese producers continued to report high demand both from ordinary customers and from those buyers who switched source after failing to secure supplies from China.

Several producers outside China claimed to have contracted almost all of their material for the first and second quarters of this year, leaving only small volumes available for spot trading.

Industrial Minerals assessed the price of European CCM, agricultural grade, at €250-350 ($308-431) per tonne cif Europe in early March, and the high-grade FM price at $1,500-1,700 per tonne fob Europe. The price of raw magnesite remained at €65-80 per tonne fob Eastern Mediterranean.