Sibelco benefits from China’s magnesia controls

By Davide Ghilotti
Published: Thursday, 20 December 2018

Strict environmental regulation on magnesite and magnesia production in China has resulted in strong demand for imported products. Cameron Perks, Fastmarkets IM correspondent, looks at how Sibelco’s Australian operations are currently benefiting from this.

Sibelco’s Australian QMAG magnesite and magnesia operation is unique in a country that is typically seen as a mining nation. This is because in addition to Sibelco’s 600,000 tonnes of magnesite capacity, the company also has around 300,000 tonnes of caustic calcined magnesia (CCM) capacity, 100,000 tonnes of dead burned magnesia (DBM) capacity and 30,000 tonnes of electrofused magnesia (EFM) capacity (DBM and EFM use CCM as a feedstock). 

To produce magnesia or CCM, Sibelco uses natural gas to heat raw material to around 1,000°C, while to produce DBM and EFM, temperatures of around 2,000°C and >3,000°C respectively are used. 

While labor costs play a large part in the lack of manufacturing industry in the country, the high cost of gas is usually the largest factor. Energy prices in Australia are high due to huge export demand, with overseas companies willing to pay a premium over domestic users. And so, for a company that relies heavily on gas supply, it is surprising to see it based in Australia. 

One reason for this is the very high-quality nature of the deposit it relies upon. According to the Queensland state government, the Kunwarara deposit in central Queensland is the largest known source of ultrafine-grain cryptocrystalline to microcrystalline nodular magnesite in the world.

Magnesite in Australia

Magnesite was discovered at Kunwarara in 1985 by Queensland Metals Corp (QMC), which quickly recognized the deposit’s refractory grade potential. Kunwarara produced its first magnesite in 1991 under QMC, later renamed Queensland Magnesia Ltd (QMAG). In 2012, QMAG was purchased by Sibelco, in an acquisition underlining the company’s long-term optimistic view of the market. QMAG commenced mining at the Yaamba magnesite deposit in September 2010.

Together, the Kunwarara and Yaamba mines produced magnesite worth just over A$15.4 million ($11.2 million) in the 2016-17 financial year. Now if this sounds low to you, that’s because it is. In the 2015-16 financial year, magnesite production was worth A$34 million, while a year earlier it was worth A$45.1 million. 

Likewise, production fell from 

658,562 tonnes in 2014-15, to 462,901 tonnes in 2015-16, and 207,603 tonnes in 2016-17. This corresponds with a fall in magnesia prices in China from an average of $466.15 per tonne* in 2014 and $408.53 per tonne in 2015, to $377.50 per tonne in 2016. Chinese prices then started to pick up in 2017.

Now, prices for EFM and DBM have increased. While production numbers are not known for 2017-18 or 2018-19, market sources have told Fastmarkets IM that QMAG is now running at full capacity in order to keep up with strong demand coming out of China. 

Coincidentally, Sibelco is now looking to sell its QMAG operation, perhaps in an attempt to capitalize on high prices and maximize its value to potential buyers. 

Unfortunately, little is known about the sale, and details over this year’s prices achieved by QMAG are impossible to gather as legal processes around the sale of the company shroud it in opacity. 

How did we get here?

2015 was a very different year for magnesia producers, with one European miner telling Fastmarkets IM at the time that "it is very hard to make money now, with prices this low".

The comment came at a time where Chinese magnesia products were flooding European markets, coinciding with a period of falling demand from steel makers.

That year, Fastmarkets IM reported that the Chinese government was seeking to curb what it saw as "wasteful and inefficient exploitation of China’s high-grade magnesite reserves, which are limited in number and size", and "although the Chinese government is reluctant to intercede in the domestic magnesia industry, its hand has been forced by the increasingly cannibalistic nature of the business". 

While no mention was made of the environmentally destructive nature of the "increasingly cannibalistic" business practices, it would be the first sign of things to come. 

Fast forward to 2016 and prices for both EFM and DBM continued to struggle as a result of the downturn in their main end market, steel refractories. The CCM segment fared better, owing to its diversified applications.  

At the same time, stricter environmental regulations were taking hold, with major shutdowns taking place in the Chinese provinces of Henan and Shanxi in the latter part of the year, spurred by growing concerns over air pollution.

Shutdowns in Haicheng, the major production hub for magnesia in China, would not take place until 2017. In November of this year, Fastmarkets IM reported that the Haicheng government had released plans to restart magnesite mining in the region by September 2019.

Because of the major production capacity of this region, its restart could impact magnesia prices, and therefore QMAG’s Chinese demand, as well as its prospective company sale price. 

*This is the DBM 97.5MgO fob price.