Magnesia price support expected to continue

By Sofia Okun
Published: Friday, 14 January 2022

Magnesia producers outside of China saw good demand in 2021 and ramped up production while market participants have seen several factors supporting prices early in 2022.

The past year brought increased prices across the range of raw materials, triggered by increased costs for logistics and production while the global economy was recovering from the Covid-19 pandemic.

By early 2021, global magnesia prices had been under sustained pressure from oversupply and heavy stock accumulation, which have weighed on prices since 2018, with falling demand in 2019 and 2020 extending the decline.

Later through the year, inventory stocks depleted. From the summer of 2021, the market slipped into tightness. Fastmarkets’ price assessment for magnesia, fused, 97% MgO, cif Europe, jumped to $1,200-1,500 per tonne on November 16.

The magnesia industry in China went through environmental checks and consolidation in the first half of 2021, reducing supply. In October, electricity rationing in major Chinese production hubs such as Liaoning province added further pressure on the supply.

China accounted for the majority of global magnesia production and 60% of special magnesia grades (CCM, FM, DBM) imported to the US in 2015-18, with the trends staying similar in subsequent years.

Production in China resumed in early November and brought local prices down. But market participants expect further closures during the Winter Olympic Games in Beijing in February 2022, while the Chinese government tries to improve the ecological situation during the event. Local governments have instructed China’s magnesia producers to limit production during the Olympic Games but the scope of closures is unclear, according to sources.

A European market participant told Fastmarkets that, across the industry, people are "fed up with China’s unpredictability." Another European source said: "It is risky to depend on China 100%."

Non-Chinese production boosted

In 2021, overseas buyers started looking for more material from magnesia suppliers outside China to guarantee supply. One trader told about requests for non-Chinese synthetic magnesia and recycled magnesia bricks. Mostly, these requests brought increased demands for non-Chinese magnesia.

"The demand is insane; the market is overheated," a European producer source said.

Martin Marietta, a US-based construction materials group, reported 30% increased revenues year-on-year for its magnesia specialties division in the third quarter of 2021, "driven by improving domestic steel production and global demand for magnesia chemicals products."

Kümaş Manyezit, a part of Turkish steel and refractory material group Kümaş, said that its pellet, iron and magnesite ore products output reached 1,947 kilotonnes over the first nine months of 2021, a 26% increase year-on-year.

"We see customers coming to us who we have not seen for 10 years, because they cannot find anything from China," a European producer source told Fastmarkets in October, calling the situation "crazy".

Magnezit, a Russian producer, reported increased production capacity for magnesia fireproof materials in December 2021. A source familiar with Magnezit production said that they were seeing demand exceed pre-pandemic levels by 10-15%.

"It was a good year for us," another European production source said, adding that by August their production was sold out for the rest of the year, and in December they were fully booked for the first half of 2022. But the benefits were offset by fuel costs, including gas prices, the source added.

Natural gas and oil prices showed rises throughout the year.

Logistics problems continue

Transportation costs and unpredictability of deliveries were among the key factors affecting the industry at the end of 2021, and are likely to continue into the first half of 2022, three magnesia market participants said.

Since January 2021, the shipping industry has been facing a lack of containers and available vessels, due to reduced production during 2020. This resulted in increased delivery times and shipping costs. "Delivery takes around seven months instead of three," a European buyer complained at the end of the year.

In early December, price indicator the Drewry World Container Index – a composite of 40-foot ocean container freight rates on eight major routes to/from the United States, Europe and Asia – remained 196% higher than a year before. Logistics costs, as well as raw materials costs, have driven major refractory materials producers to increase prices.

Inflationary pressure

After the third quarter of 2021, global materials makers RHI Magnesita, Imerys and Vesuvius announced price increases for their production. In October, Imerys said it would pursue the implementation of price increases "ranging from 5% to 15% - and in a few unique situations, greater than 15%" for its Performance Minerals materials.

A European producer source told Fastmarkets in December that they had implemented a 15-25% rise for their production toward the end of the year.

During 2021, supply disruptions, which have hit commodity markets, were among the "structural" factors that have prompted the recent Eurozone inflation, the European Central Bank (ECB) said in October.

In November, inflation in the Eurozone reached 4.9%, the highest since the euro was introduced, and 6.8% in the United States, the highest rate since 1991.

A European magnesia buyer said: "2022 is going to be another interesting year."