China’s magnesia hit by fall in global demand

By Sybil Pan
Published: Monday, 12 October 2020

Global demand for magnesia has fallen significantly due to the impact of the Covid-19 pandemic, with most magnesia prices falling to their lowest levels since before the market rally in 2017.

China’s magnesia prices continued a downward trend in early 2020, following a consistent decline in 2019, due to the restrictions put in place to curb the spread of Covid-19, which affected both domestic and overseas demand in an already low-priced environment.

Halted production and logistics delays in China had added to the problems by early February, and while the domestic situation started to improve slightly from March onwards, demand from buyers outside China has remained weak since the outbreak spread to the rest of the world.

A resurgence of Covid-19 infections in Dalian in Liaoning province led to some worries about production and delivery in China’s magnesia sector, and global buyers remained in no hurry to purchase and placed only limited orders.

Most producers have had no choice but to continue lowering their prices to attract business and, in August, magnesia prices – including caustic calcined, fused and dead burned materials that Fastmarkets monitors – dropped to their lowest level since the early 2017 surge in prices.

Magnesia prices had been low for many years prior to 2017 because of uncontrolled domestic competition, but the government’s imposition of mining controls and a ban on extracting magnesite by using explosives, created a short-term shortage of material, leading to a sharp rise in prices, which then persisted into 2018. Prices then started to decline again in early 2019 due to oversupply and falling demand.

Fastmarkets' spot prices for magnesia, dead burned, 97.5% MgO, lump, fob China, was at $300-350 per tonne on August 18, down from $330-380 per tonne the previous week. That price was comparable to the low point of $305-335 per tonne of January 12, 2017, and was down by 74% from the peak of $1,100-1,400 achieved at the beginning of 2018.

Fastmarkets’ price assessment for magnesia, fused, 97% MgO, Ca:Si 2:1, lump, fob China, was $450-550 per tonne on Tuesday August 18, down from $480-580 per tonne from the previous week. That price was almost on a par with the $440-455-per-tonne low seen at the beginning of 2017, and represented a 70.6% decline from the $1,600-1,800-per-tonne peak achieved at the end of 2017.

Similarly, Fastmarkets' price assessment for magnesia, calcined, 90-92% MgO, fob China, was $110-150 per tonne on Tuesday August 18, down from $120-160 per tonne from the previous week, and down by 35.6% from the late-2017 peak of $205-230 per tonne.

"Sufficient supply and slow demand in the Chinese magnesia industry keeps putting pressure on prices even though most producers are facing unsustainable losses. Most magnesia prices have fallen to the previous lowest levels [seen] before the surge [of 2017]," a producer told Fastmarkets.

"The uncertainty [of] the Covid-19 outbreak has made most downstream refractory makers and [other] downstream sectors reduce their output because of the whole weak supply chain, which has caused limited demand for materials," a trader said.

Stricter controls
Since 2017, the local government in Liaoning province – China’s magnesia production hub – has continued its efforts to promote the healthy development of the industry through stricter environmental controls. And, in July 2020, a new round of restrictions on opencast magnesite mining using explosives began in Anshan, Yingkou and Liaoyang cities.

The aim is to reduce environmental pollution and reduce magnesia stocks by controlling mining supplies, and the controls are expected to remain in place until the end of the year. Underground magnesite mining, meanwhile, can continue as normal using some explosives.

But market participants said this round of restrictions will only have a limited impact on China’s magnesia prices in an already oversupplied market, with magnesia prices showing little sign of stopping sliding so far.

"Open-pit mining for magnesite by explosives was halted [in July], but limited support [for prices] has been seen. China’s magnesia price wars remain [because] eager sellers would like to boost sales," a second producer said.

Outlook
Most market participants do not expect to see any significant improvement in the magnesia industry in the short term, considering the current lack of downstream buying and more than sufficient inventories, so the near-term outlook for magnesia remains negative. 

While domestic demand has seen a slight improvement, international demand remains disrupted by Covid-19 restrictions, and most producers are pinning their hopes on an improvement at the end of 2020 or the start of 2021.

"Downstream buying is still not active, [and with no signs of an] increase in demand, I think the market will not see any recovery until the end of this year at the earliest," a buyer said. "It still needs time to consume existing magnesia stocks and the whole market remains in chaos. From my point of view, the whole magnesia market [is unlikely] to witness any increase this year and I’m just [hoping for] a better market in 2021," a third producer said.