Chinese magnesia prices were under pressure during the first
half of 2020 due to a combination of excess supply and weak
demand from the downstream refractory sector, with the latter
severely affected by the Covid-19 pandemic. And while many
magnesia producers in China operated at less than 50% capacity
or halted production entirely due to the challenging market
conditions, an accumulation of stocks in the market maintained
downward pressure on prices in the first half of the year.
With capacity to produce nearly 20 million tonnes per year
of magnesia, China is the world’s top supplier of
the material and its oversupplied domestic market had been an
unsettling problem for the global industry ever since more than
3 million tonnes of floatation production lines were added in
2018, in response to magnesia prices surging to historic highs
in the prior year.
This problem of overcapacity was exacerbated this year by
the Covid-19 pandemic, which resulted in a slowdown in buying
activity, with most buyers purchasing less than 50% of their
usual volumes.This saw producer stocks at warehouses climb by
around 5 million tonnes, which could cover several months of
consumption, market sources said.
To deal with this overcapacity, the Liaoning provincial
government stepped up its efforts to promote the healthy
development of the market by introducing restrictions on
magnesite mining activities in July, in a bid to reduce the
amount of magnesia in the country.
After relying solely on existing magnesia stocks with
producers not being able to mine more material due to a halt
on opencast magnesite mining using explosives, availability
of magnesia in the Chinese domestic market declined in the
second half of 2020 and the oversupplied conditions have
greatly eased, market sources told Fastmarkets.
Moreover, Liaoning’s provincial government
together with authorities of different cities in the province
continued to push for consolidation of the domestic magnesia
industry by implementing quotas on magnesite production to
curb overall output.
Also, in the second half of the year, authorities carried
out stricter environmental checks in Dashiqiao and Haicheng,
two key magnesia production hubs, and ordered producers that
did not meet environmental standards to halt operations.
These actions sent positive signals to China’s
magnesia market and underpinned prices as a whole.
Additionally, cheaper material disappeared from the market
following the halts at some small-sized producers, allowing
for sellers to insist on higher prices for dead burned
magnesia, fused magnesia and caustic calcined magnesia for
the first time this year in the middle of November.
Fastmarkets assessed the magnesia, fused, 97% MgO, Ca:Si
2:1, lump, fob China price at $500-580 per tonne on December
15, steady week on week but up from $470-550 per tonne at the
start of the month. The assessment had been as low as
$450-550 per tonne on August 18, a level which it held for 12
straight weeks before eventually nudging higher to $460-550
per tonne on November 17. Prices still remain below where
they started the year, at $520-620 per tonne on January
Similarly, dead burned magnesia prices in China had also
trended downward throughout the year before ticking up in
mid-November; Fastmarkets’ price assessment for
magnesia, dead burned, 97.5% MgO, lump, fob China was at
$330-370 per tonne on December 15, up from $310-350 per tonne
at the start of December. This is up from a low of $300-350
per tonne on August 18, but still below the level of $400-450
per tonne where it started the year.
"After banning explosives in mining and carrying out
strict environmental inspections, there is not much material
available on hand with more companies halting production near
the year-end. Most magnesia prices are moving up due to tight
supply," a producer source told Fastmarkets.
Most caustic calcined magnesia producers also increased
their offers because they had halted production so that they
could complete upgrading to ensure their equipment complies
with the latest desulfurization and denitrification
standards. The government requires producers meet these
standards before January 2021 or else they will not be able
to resume production, market sources said.
Fastmarkets' price assessment for magnesia, calcined,
90-92% MgO, fob China was $130-160 per tonne on December 8,
up from $120-150 per tonne a week earlier. That assessment is
up from a low of $110-150 per tonne on August 18, but still
down from $140-180 per tonne on January 7.
Because most magnesite resources and magnesia-processing
companies are located in Yingkou and Anshan, cities in
Liaoning, provincial and local authorities have continued
their environmental efforts with a series of inspections
carried out in both cities since September this year.
The inspections began in Anshan, with a new round of
checks of heavy industries launched in the middle of
September. Liaoning’s first environmental
inspection team went to Anshan over September 13-28 to
supervise local environmental regulations and improve air
quality. Many small-sized magnesia producers that use heavily
polluting kilns were ordered to halt operations so as to
update their equipment to meet emissions standards.
On September 28, the local government of Dashiqiao under
the city of Anshan began a three-month environmental
inspection of the magnesia industry to monitor pollution
levels. During the first round of inspections until November
14, the local government closed 92 of the 537
magnesia-focused companies that operate in Dashiqiao because
they did not meet the required environmental standards.
Moreover, in the second round of inspections in Dashiqiao
from November 14 to December 8, the local government ordered
116 magnesia companies to suspend production to update plants
and maintain equipment.
Meanwhile, the local government in Haicheng, also in
Anshan, held a meeting on December 7 to discuss plans for the
launching of environmental inspections to supervise local
"I think the recent environmental inspections within
Liaoning province are the strictest because more magnesia
enterprises have to halt production to update plants and
equipment to meet the required standard. Most magnesia
producers insist on higher offering prices due to low
availability of materials on hand, and some have even stopped
offering for the time being," a trader said.
Optimistic outlook for 2021
With downstream buyers consuming accumulated magnesia stocks
in China since July due to the mining curbs that resulted in
reduced availability of new material, the domestic market is
not as oversupplied as it once was, according to most market
Coupled with expectations that strict governmental
inspections will continue next year, this has led to a more
optimistic outlook for magnesia prices in 2021.
Most producers expect an increase of at least 30% in
prices for 2021 compared with current levels. Buyers, on the
other hand, remain more cautious but agree that prices may
rise in the first quarter of 2021 because most producers in
China may still not have resumed normal production by that
time. In terms of the longer-term outlook, participants said
it was difficult to gauge where prices will be due to the
uncertainty surrounding the Covid-19 pandemic and what sort
of impact it may have on demand.
Moreover, plans to consolidate the Chinese magnesia
industry will continue in 2021 with the Liaoning provincial
government planning to implement annual production quotas to
ensure greater control on total output. Liaoning province
would form just two or three magnesite mining groups with
integration carried out at county and district levels, and
newly-built magnesite mines must reach a minimum mining scale
of 300,000 tpy. The industry consolidation will strictly
control the increase in magnesite mines and magnesia
capacity, which could also support the industry as a
"Domestic sales have been increasing in recent weeks
because buyers are purchasing more material in fear of
further price increases. Overseas demand has also recovered
slightly with increasing inquiries and orders from Asian
buyers, but due to high freight fees, demand from Europe and
the United States remains flat. Considering the strict
environmental regulations will continue in 2021, the tight
supply situation should persist for a while. We will insist
on higher prices and it will be hard to guarantee large
volumes of supply," a second producer source said.
"Our suppliers inform us that prices will increase by $30
per tonne or even higher in the first quarter of 2021 because
most production will still be halted to update equipment to
reach environmental standards. I think prices will be still
firm in the first quarter in 2021, but as for how high it
could reach, I think it will not surge in a large range
because it is hard to say whether downstream demand will
recover further next year due to the uncertain impact from
the global Covid-19 pandemic," a buyer said.