Fastmarkets’ price assessment for
magnesia, fused, 97% MgO, Ca:Si 2:1, lump, fob China was
$550-650 per tonne on November 26, down by around 65% from
$1,600-1,800 per tonne at the end of 2017.
Magnesia prices were low for many years until 2017
because of uncontrolled domestic competition for market share
against a backdrop of excess capacity. Capacity was around 20
million tonnes per year at its peak, according to market
participants. Prices subsequently surged to a historical peak
two years ago due to the government’s imposition
of mining controls and a ban on extracting magnesite by using
explosives at that time, creating a short-term shortage of
material.
Unable to operate with explosives to access
deep-lying high-quality ores, producers turned to using
drilling equipment to source magnesite or added more flotation
lines that can process low-grade ore to produce qualified
magnesia. This caused supply to drop, triggering the sharp
increase in prices.
From a very low base, combined capacity at the
magnesia flotation production lines – built and
planned since the mining controls were introduced in 2017
– in Liaoning province has ballooned to 6 million tpy,
Liaoning Special Resources Industry Development Center said in
September. The Center is a subsidiary of Liaoning Provincial
Committee of Industry and Information Technology, which is
responsible for the protection and management of magnesium,
boron, talc, bentonite, jade and other industrial special
resources in the province.
Total capacity for all types of magnesia in
Liaoning province – the country’s
magnesia production hub, accounting for more than 90% of total
domestic capacity – exceeds 28 million tpy, but the
utilization rate there is currently below 50%. Market
participants estimate that 2019 production will be around 14
million tonnes, including caustic calcined magnesia, dead
burned magnesia and fused magnesia. China’s
magnesia output typically accounts for more than 60% of global
production.
"Increasing flotation production lines for
magnesia has brought more stock to the spot market," a Chinese
magnesia producer told Fastmarkets. "Our operating rate is
around 50% now and it is quite hard to sell under current
sluggish market conditions."
Environmental regulations
The Liaoning government has aligned its efforts to
regulate the local magnesia industry with central government
targets on controlling pollution and promoting the healthy
development of markets. In the production hub of Haicheng in
the state, strict mining controls from 2017 to 2018 prohibited
the extraction of magnesite using explosives. As well, all
magnesite mining was suspended for more than 18 months during
2017-2018 while environment inspections and safety checks were
carried out.
In 2019, although some major producers received
explosives earlier in the year, their use was limited to rock
stripping. And between August 1 and October 31, the government
enforced another three-month halt on magnesite mining to
coincide with a national holiday in China.
Still, prices were pressured lower by the presence
of stocks that had accumulated previously. As well, Daishiqiao
and Xiuyan – two other magnesia production hubs in
Liaoning province – did not ban magnesite mining
outright, given producers there easy access to raw magnesite
ore for processing.
"Due to sufficient supply and inventory, the
stoppage of magnesite mining in Haicheng had a limited effect
on supporting magnesia prices. We have no choice but to lower
prices to secure deals in such a quiet market," a second
producer said. "I heard talk about stopping all magnesite in
Liaoning province – not only in the Haicheng region
– but I’m not sure whether it will
officially be carried out next year," the second producer
added.
Outlook
Accumulated overcapacity will continue to put
downward pressure on prices alongside weak demand –
especially for fused magnesia – from sluggish end-use
sectors such as steel, cement and glass. According to official
Chinese customs data, China exported 304,898 tonnes of fused
magnesia in the first 10 months of 2019, down 30.2% from
436,722 tonnes a year earlier.
Any recovery in the magnesia market will take some
time to emerge, market participants agree. "With the approach
of the Christmas holiday in December and Lunar New Year in
January 2020, the magnesia market will not recover in the short
term," a third Chinese producer said. "I don’t
think a recovery will happen in the first quarter of 2020."
"Because most producers are still suffering from
high stocks and reduced buying from downstream buyers, I think
it will be hard for the whole magnesia market to pick up in the
first half of next year," a buyer added.