China maintains strict environmental stance on heavy industry pollution

By Davide Ghilotti, Carrie Shi
Published: Thursday, 17 May 2018

China produces mineral commodities that are among the most widely used in the refractories, abrasives and pigments sectors, and is continuing its drive to improve the environmental profile of its heavy industry, as well as preparing for further restrictions on local operations.

The Chinese government has continued to launch environmental inspections of heavy industries in the country in order to strengthen its control over industrial pollution levels and the quality of the environment.

Industrial activities have been influenced by the inspections, and a number of enterprises which have not reached the required standard will be strictly supervised or shut down.

Most industrial minerals prices have in the recent past shown an upward trend, because the diminished supply caused by the inspections has created a bullish effect in the spot markets.

Earlier this year, China’s Ministry of Ecology & Environment announced that the country will continue to carry out its first round of strict environmental inspections, and will complete a second round of inspections within three years under the supervision of the central government.

In mid-March, environment minister Li Ganjie said that, while specific steps have yet to be outlined, the three-year plan will broadly focus on "controlling pollution in key areas and from heavy industries."

Three inspection teams from the ministry have been deployed for the first round of environmental inspections, according to meetings held by bureaux of supervision in northern, southwest and northeast China on April 23-24. The inspection groups will stay in the inspected units for around one month.

Regional governments in each province of China have also made more effort to control pollution, and to accelerate industrial restructuring and upgrading, in order to reduce the pressure on the country’s ecology.

Since April, Liaoning province has restricted magnesite mining pending environmental inspections, Hebei province has brought in stricter regulation for local companies, Shanxi province has started a new round of environment inspections in Lvliang and Jinzhong, and Sichuan province has started inspections regarding health and safety in sectors including steel, coal and electrolytic aluminium.

Shandong province is expected to start new environmental inspections in four cities in May – Zibo, Dongying, Taian and Linyi.

Production limits and shutdowns have resulted in significant changes to some industries since last year.

And the wide-reaching government action related to the implementation and tightening of the environmental policy has had serious consequences for a number of mineral supply chains in the country, including bauxite and alumina, graphite and magnesia, and titanium dioxide (TiO2).

What follows is a breakdown of how these mineral commodities have been affected to date.

Chinese brown fused alumina, refractory grade,
price ($ per tonne, fob China)
Reg1  
Source: Industrial Minerals 

Chinese refractory grade bauxite 85% price ($ per tonne, fob China)
Reg2  
Source: Industrial Minerals 

Bauxite, alumina

Bauxite mining in Shanxi, China’s principal producing province of the refractory-grade mineral, has been targeted by government authorities on and off since 2016. The first wave of clampdowns, which very much resembles the situation today, had the twin aims of reducing widespread illegal mining of the mineral, as well as improving the sustainability of bauxite mining and processing by reducing pollution of the local air and water.

From mid-November 2017 to mid-March 2018, a temporary shutdown was enacted in Shanxi and Henan, the latter being the main province for production of fused alumina. During the four-month period, industrial production of bauxite and alumina was severely reduced, a pattern that kept stocks low and prices high.

Then, at the end of March, fresh regulations from the national government set out a three-month plan for proper management of local land and resources, tackling unlicensed exploration and illegal exploitation and mining of bauxite.

Shortly after, in the week of April 16, bauxite calcination plants in Shanxi were ordered to halt all operations once again, pending new inspections. Sources said that this closure may last as long as two months, until the end of June.

For its part, the alumina industry was hoping that the market would stabilize, with a gradual return to normal production flows. This was not the case, however, because in mid-March, the Ministry of Industry & Information Technology (MIIT) sent a working group to Xinxiang and Anyang, in Henan province, for a supervision meeting on peak production levels.

Exacerbated by bad weather conditions, levels of air pollution have consistently exceeded acceptable thresholds throughout the winter, despite the temporary shutdowns.

"This is the situation after months of almost no production," one market participant, who visited the province, told Industrial Minerals. "If I’m any judge, this won’t deter the authorities. They will continue to impose shutdowns."

Flake graphite, 94-97%, +80 mesh, price ($ per tonne, cif Europe)
Reg3  
Source: Industrial Minerals 

Chinese dead burned magnesia, 97.5%, lump, price
($ per tonne, fob China)
Reg4  
Source: Industrial Minerals 

Magnesia

The market for magnesite and processed magnesia products experienced a severe squeeze in Chinese output last year, which led prices to spiral upward in the second half of 2017 and to remain firm into 2018.

Mining restrictions remained in place into this year, with dynamite blasting banned and miners allowed to extract material only via pneumatic drilling or by hand. This had already affected the availability of magnesite ore for the production of high-grade magnesia, leading to a shortage of high-grade dead-burned magnesia (DBM) and fused magnesia (FM), which is continuing.

In mid-April, a sudden government order brought a halt to all magnesite mining in Liaoning, the country’s largest producing area for magnesia. Several producers in contact with Industrial Minerals confirmed that they had stopped mining, and did not know how long the stoppage would last.

"All magnesia companies have been forced to stop magnesite mining from April 12, following government requirements," a local producer said.

Market prices have so far been unchanged in the weeks since the mine closure, but market participants remain on alert, after witnessing the sharp increase in prices last year.

Graphite

In line with the restrictions imposed on other mineral supply chains, graphite was also widely affected by the environmental policy-related series of inspections and closures last year, especially in Shandong, the main producing province for the mineral.

This led to a rapid appreciation in the spot market prices for flake graphite in the second half of 2017, following a number of years of weak pricing. The high price levels have since stabilized in early 2018 and have mostly held steady to date.

Local producers are, however, concerned about a fresh round of production cuts in anticipation of a government summit to be held in Qingdao in June. As seen on several previous occasions, authorities impose a temporary stop to heavy industrial operations in the weeks running up to an event, to improve local pollution levels. Sources expect that they will do the same in this instance.

TiO2

Production of titanium dioxide in China slowed over the winter months. The increased use of energy for house heating increased air pollution, particularly in the TiO2 producing hub of Panzihua, in Sichuan.

Many producers are reported to have used the period to idle capacity and to conduct repairs, with other sites periodically closed down by snap inspections triggered every time the air quality drops below an acceptable level.

Market participants report that production has seen a strong rebound across China, with temperatures rising as the weather improves, and environmental restrictions have been lifted.

But western consumers expect restrictions on Chinese supply to continue, given the long-term focus on preserving air quality.

"They’ve been pretty clear about what they want to do. They aren’t going to change course now," one buyer told Industrial Minerals. "The increase was seasonal, as we expected, but it doesn’t change the picture."



More like this