‘Hand-to-mouth’ raw material sourcing will be norm in 2020, sellers warn

By Davide Ghilotti
Published: Friday, 01 November 2019

Purchasing of refractory raw materials is expected to remain ‘hand to mouth’ into 2020, suppliers attending this week’s UNITECR 2019 refractories conference in Yokohama, Japan, warned.

  • Further weakness expected
  • Inventory levels kept low
  • "Hand to mouth" purchasing

Owing to bearish macroeconomic conditions affecting the main markets - including Europe, parts of Asia and China - refractories producers expect to see further weakness in the performance of their end markets, whether in steelmaking or industrial.

Sourcing for raw materials will adapt to these conditions, delegates in Japan told Fastmarkets, and this will involve destocking and small-volume orders.

"The uncertainty in end markets mean that buyers will not want to commit to high volumes," one seller of refractory feedstock said. "Only the volumes they know they will consume will be purchased."

Until they see evidence of conditions in their end markets improving, refractories producers will keep inventory levels at a minimum to contain costs.

"We expect only hand to mouth purchasing [from our clients] - nothing larger than that," a raw materials distributor said.

An additional issue that refractories producers face is that their customers - steelmakers and foundry plants - already have high stocks of material on hand. And because these stocks also include finished steel products, plant output has slowed, thereby further reducing demand for refractories.

This means that the destocking phase is not only taking place on the raw materials side, but extends downstream to finished refractories products and steel products.

One consumer did acknowledge that conditions on the pricing front could be favorable to more long-term inventory plans, but conceded that there are many risks around that.

"This could be the right time to go long on some raw materials, such as high-purity fused magnesia, for instance, because the price has gone down.

"But it’s a gamble right now [because] it’s hard to justify a re-stocking at this phase of the cycle," the buyer said.

The Fastmarkets’ price assessment for magnesia, fused, 97% MgO, Ca:Si 1:1, lump, fob China fell to $650-750 per tonne on September 24, compared with $1,000-1,100 per tonne at the start of 2019 and $1,400-1,600 per tonne in October 2017.

"You could get it right, or you could get it very wrong," he added.