China’s magnesia market has been
stuck in a bind in 2019.
Low prices have continued to dominate the spot
market, even though mining restrictions and a ban on using
explosives have remained in place in Haicheng, the part of
China's northeastern Liaoning province where, along with
Heilongjiang province, the majority of Chinese magnesite is
The persistent price weakness has been blamed on
quiet demand from downstream buyers and increasing stocks held
in inventories at customer warehouses, which have deterred
magnesia consumers from taking advantage of low prices to
stockpile additional material.
Having entered 2019 on a downward trend, the
market decline accelerated in the early part of the year,
pressured by accumulating producer stocks.
Magnesia consumption in the refractories sector
has also dwindled, while supply of magnesia bricks has
outweighed demand from the steel, glass and cement sectors and
Chinese refractory manufacturers have been subjected to
Most Chinese magnesia producers responded to the
downturn in demand
by lowering prices to boost sales and cash flow.
By October 2019, this race to the bottom had
pulled prices to their lowest level in nearly two years.
It had been expected that curbs on magnesite
mining by the Chinese government would curtail raw material
supply and push up magnesia prices.
On August 1, authorities in Liaoning and
Heilongjiang imposed a three-month halt on magnesite mining,
due to last until October 31.
The ban was deliberately intended to encompass a
national holiday in China from October 1-7 for the
country’s 70th anniversary celebrations and
to reduce local pollution levels during the festivities, as
well as to give producers and buyers a chance to run down
Liaoning province was also to impose new
regulations, starting on October 1, aimed at improving the
efficiency of the province’s mining industry by
forcing mine owners to implement new technology and equipment,
or face permanent closure.
Similar restrictions and regulations on magnesite
mines in the past have pushed up prices, but so far this year
the effect has been barely noticeable.
Faced with flat market conditions and having
slashed prices to what some market commentators believed were
unsustainably low levels, China’s magnesia
producers are facing a dilemma over what to do next.
Declining refractories demand
Chinese refractory output has decreased this year
compared with 2018, with production hubs such as Henan and
Shandong provinces being forced to implement rolling closures
to allow for strict environmental inspections - some of which
have resulted in longer suspensions, so that remedial action
can be taken.
China’s total output of refractory
materials was 8.61 million tonnes in the first half of 2019,
down by 9% from 9.45 million tonnes in the same period of 2018,
according to data from the China Association of
The country produced 3.1 million tonnes of
unshaped refractory products in January-June 2019, down by 4.6%
compared with the first half of 2018.
This included 2.7 million tonnes of
alumina-silicon refractories and 453,600 tonnes of
magnesia-based unshaped refractories, down by 1.9% and 17.6%
year on year respectively.
"Downstream buying from the refractory sector has
been persistently weak this year, which puts more pressure on
refractory raw materials such as magnesia," one Chinese
magnesia producer told Fastmarkets.
"I estimate demand from refractories will not
improve greatly in the remainder of 2019, with the approach of
seasonal factory closures and new restrictions from the
authorities. This will further depress demand for raw
materials," the producer added.
Market participants both in and outside China are
not optimistic of a magnesia market turnaround any time
Suppliers of magnesia products at the Unified
International Technical Conference on Refractories (UNITECR) in
Yokohama, Japan, in mid-October suggested it may take at least
another eight to 10 months for the market to improve.
Some predicted that market conditions would get
worse in the first half of 2020, before potentially recovering
from an anticipated nadir in the middle of next year.
In compliance with new regulations requiring
technical upgrades, some Chinese magnesia producers with
sufficiently robust balance sheets are using the suspension
period to invest in new processing facilities, especially
flotation lines, with large capacities, for high-purity
products, Fastmarkets understands.
It is assumed that the production ban coupled with
extremely testing market conditions will weed out weak and
inefficient suppliers, allowing newly upgraded producers to
absorb their market share when the sector rebounds.
Industry sources have estimated there could be
some 10-12 flotation lines being installed in
China’s main magnesia-producing areas for dead
burned (DBM) and fused magnesia (FM) this year.
Some have questioned China’s magnesia
production strategy, calling it "confused", and many are
waiting anxiously to see how the policy of restricting
production while investing in new capacity plays out over the
Chinese magnesia exports ebb
Compounding weak domestic demand for Chinese
magnesia, orders from abroad have also slowed down this
The global refractories market has had a sluggish
2019 due to weak end market activity and oversupply of
Volatility in China’s magnesia market
in the past two years caused by production suspensions have led
many foreign buyers to choose to buy more magnesia from
suppliers outside of China to guarantee consistent supply and
predictable pricing, rather than risk another Chinese supply
squeeze and corresponding price surge.
China’s exports of fused magnesia
(FM) in particular have dropped off significantly compared to
last year, and prices have collapsed.
China exported a total of 246,616 tonnes of FM in
the first eight months of 2019, down by 31% from 356,957 tonnes
in the same months of 2018.
FM export revenue was $188.13 million in
January-August 2019, down by 40% from $313.1 million in the
same period of the previous year, customs data shows.
Fastmarkets assessed the price for magnesia,
fused, 97% MgO, Ca:Si 2:1, lump, fob China at $750-850 per
tonne in the second week of October, down from $1,250-1,350 per
tonne in early 2019.
Exports of Chinese dead burned magnesia (DBM) have
grown slightly year-to-date from 2018, although prices have
China exported a total of 664,077 tonnes of DBM in
the first eight months of 2019, up 7.1% from 619,866 tonnes in
the same months of 2018.
DBM export revenue was $198.3 million in
January-August, down 20.6% from $249.59 million from the
equivalent period last year.
Fastmarkets' spot price for magnesia, dead burned,
97.5% MgO, lump, fob China was $500-600 per tonne in the second
week of October, down from $1,100-1,300 per tonne on January 1,
China’s caustic calcined magnesia
(CCM) market has mostly held steady in 2019 compared with the
previous year, with prices rangebound in the first half of the
year on stable demand from the chemical sector, which is
another major consuming sector of CCM beside refractories.
Export prices started to weaken in July, however,
due to globally flat magnesia markets.
China exported 535,963 tonnes of CCM in the first
eight months of 2019, up 3.8% from 516,435 tonnes in the same
months of 2018.
Export revenue was $92.4 million in
January-August, up 0.8% from $91.7 million in the same months
Fastmarkets assessed the magnesia, calcined,
90-92% MgO, fob China price at $170-210 per tonne in the second
week of October, down from $180-220 per tonne in early
|China export volume FM in 2018-2019
|Source: China Customs
|China export volume of DBM in 2018-2019
|Source: China Customs
|China export volume of CCM in 2018-2019
|Source: China Customs
European steel struggles with heavy
Falling European steel production, ample magnesia
supplies, and heavy stocks have added up to a perfect storm for
European magnesia markets.
When European magnesia prices rose sharply in
early 2018, buying accelerated rapidly, as consumers attempted
to get ahead of future price rises.
The result has been a heavy build-up of stocks,
which the industry is still struggling to consume, while demand
from the steel industry lags.
According to the World Steel Association
(Worldsteel), European steel production was down by 2.2% year
on year in August 2019.
Lower demand is driving this drop in European
steel production. Worldsteel in October forecast total 2019
steel demand in the European Union to fall by 1.2% year on
Steel consumption has been undermined by sharp
fall in activity in the automotive sector, which is the result
of a general slowdown in manufacturing, shifts in consumer car
preferences and wider economic uncertainty caused by trade and
Passenger car production in Germany,
Europe’s largest car producer, was down by 10.6%
year on year between January and August 2019.
Europe’s steel industry is also
facing heavy competition from China.
On October 8, the Spanish industrial minister
Reyes Maroto sent a letter to the European Commission asking
for a review of "safeguard measures" on steel products
coming into Europe.
The letter suggested that steel imports from China
were shutting down local production.
On October 13, the EU imposed an anti-dumping
tariff on steel road wheel imports from China and is
considering slapping tariffs on further products, including
hot-rolled steel, stainless steel sheets and coils.
All this is bad news for magnesia producers, in
China and globally, which rely on the steel market as the main
driver of magnesia-refractories demand.
At the same time, large volumes of magnesia
production are understood to be coming online in
This provides buyers with little incentive to
purchase anything more than hand-to-mouth quantities, and even
this is being limited by high inventories.
Industry sources at UNITECR 2019 implied that
incremental spot purchases could become the norm for refractory
raw materials, including magnesia, for at least the next six
months until the market balance shifts.
One European refractory producer told Fastmarkets
that his company’s most recent FM purchase was in
2018. This purchase had been expected to meet the
company’s needs for six months. Instead, the
company was now not expecting to buy again before 2020.
Another refractories producer has bought magnesia
in recent months "but I’m the only one who has,"
The source said that it made purchases to meet
short-term needs, despite limited demand for refractory
products. The buyer added that it was not expecting inventories
to start building again until the start of next year at the