The association of refractory producers in the city of Yingkou has called on local companies to adjust their prices on the back of market tightness and production shutdowns.

The Refractory Industry Association of Yingkou, in China’s Liaoning province, announced last week it is recommending an increase in sale prices of magnesium-based refractory products due to rising production costs.

The local industry is facing a number of contingencies, the association stated, citing domestic magnesia prices – especially fused magnesia (FM) – increasing since May, coupled with reduced material availability.

As a result, refractory producers were forced to temporarily stop production, refused to take new orders or to participate in bid contracts.

The association encouraged all companies to take swift measures to achieve the required environmental upgrades and technical modifications to be able to resume production, in order to guarantee output to market and ease the current imbalance between supply and demand.

According to the association, market prices of Chinese magnesia remained stable between January and November 2016 before beginning to change since December, when supply became tight due to environmental inspections. Furnaces stopped operating, even cash couldn’t get the goods.

Compared with November 2016, domestic magnesia prices as of end of May 2017 have increased by a range of Chinese renminbi (Rmb) 900-3,100/tonne ($132-456) depending on product type, for both DBM and FM.

Additionally, the price of other source materials also increased, such as bauxite in Shanxi and alumina in Henan and Shandong.

The association announced the guidance prices for magnesium refractory products on the domestic market should increase as a consequence.

The guidance domestic price of burned magnesite bricks is up by Rmb 1,800/tonne against November 2016. Standard magnesia carbon brick prices are up by Rmb 1,700/tonne; high class magnesia carbon bricks increased Rmb 2,800/tonne, while unshaped refractory product prices rose Rmb 1,500/tonne.

The authority added that other refractory products will need to appreciate based on increases in source material prices, and that the price for steel refractories in overall contracts should rise accordingly.

The association expressed concerns around the announcement that the environmental inspection may continue until October before all companies will be able to resume normal production, citing very tight magnesia supply currently and prices on the up.

To date, only a handful of magnesia producers have resumed production operations.

Brown fused alumina prices in China reached a 1.5-year high this week. The ongoing anti-pollution checks continue to cap production in Henan while scrutiny on export documents is ridding the market of lower offers.

Chinese brown fused alumina spot prices hit a 1.5-year high over the past two weeks as widespread environmental inspections continue to push prices upwards.

Environmental inspectors have moved into Henan province – the main fused alumina producing region in China – since mid-July, and many facilities were compelled to close while the inspections took place.

Randomised anti-pollution checks have been conducted at plants in various parts of the province, which reduced total fused alumina output in the region, at least three local producers told IM.

China is one of the largest fused alumina producers globally and the output cut will impact exports to international
refractories and abrasive end markets.

Due to the ongoing production outage, brown fused alumina (BFA) prices have rocketed over the past fortnight, continuing the uptrend that was first identified on 13 July.

«It’s like a roller-coaster: [prices are] rising every two days,» said one Henan-based producer on the price volatility.
Refractory-grade brown fused alumina (BFA) (95% Al2O3 min, 0-6mm) spot prices jumped by an average of $65/tonne to $700-750/tonne FOB China, up from $620-700/tonne a fortnight ago, according to IM’s assessments on 24 August.

Offers for BFA produced from fixed furnace start at the lower end of the range, close to $700, while premium material from tipping or Higgins furnace is priced at the higher-end.

Abrasive-grade material (95% Al2O3 min, Fepa F8-220 Grit) also rose to $780-825/tonne FOB China, up from
$730-780/tonne.

Supply of certain grit sizes will continue to be limited due reduced capacity and drawn down inventory, two Henan-based producers said.

«Every little we produce gets taken straightaway. Inventory is zero,» said the first Henan producer.
The producer and another Europe-based distributor have expressed concern about the ability to fulfill supply contracts in the coming months amid the great supply uncertainty.

In contrast, due to sufficient raw material alumina supply, white fused alumina prices remained stable as production was not as badly impacted.

Refractory-grade white fused alumina (99.0% Al2O3 min, in 25kg bags) prices have remained unchanged since 6 April at €700-750/tonne ($820-878/tonne) CIF Europe.

Two Henan-based producers lamented that the higher prices were a direct effect of rising raw material cost, and did not contribute to higher profit margins.

Raw material bottleneck, VAT scrutiny
To further compound supply issue, the prices of graphite electrode, a key component in the kiln for the production of fused alumina, have spiked in recent months.

According to one Chinese producers on 24 August, graphite electrode prices have increased to above Chinese Renminbi (Rmb) 60,000/tonne ($9,003/tonne), up from Rmb 50,000 ($7,502/tonne) in end-July. Note: IM does not track or publish prices of graphite electrode.

Fused alumina producers estimate around 2-23kg of graphite electrode is used to produce every tonne of fused alumina, and the price spike has further supported upticks in this market.

The supply of locally mined high-grade bauxite ore remained restricted, which has further impacted fused alumina
production.

Meanwhile, intense scrutiny on export documents by China customs has discouraged any offers that do not include the 17% value-added tax (VAT), a second Henan producer said.

«Now nobody dare go through Hong Kong; it’s too risky,» said the producer.

Buyers could avoid paying the 17% VAT when they route payment through off-shore accounts held in Hong Kong or Chinese brown fused alumina prices hit new high | Industrial Minerals Shenzhen, hence some sellers often conduct business through this method.

Tax evasion on minerals exports is widely acknowledged as being common in China. Such practices have existed for many years and, although illegal, they were often overlooked by authorities, before the latest crackdown on tax dodgers.

The latest surge in prices follows extreme tightness in availability of material from European producers, and compounds the shortage seen in China.

Prices of European fused magnesia (FM) have surged to exceed the $1,000/tonne mark this week, following repeated upticks in Chinese prices and extremely tight availability of material reflecting on international demand flows.

While the European magnesia market as a whole somehow managed to stave off the rapid price uptrend that has been seen in China since Q2, the widespread shortage of fused magnesia has now taken the price of the commodity up by over 50% against earlier levels.

European-produced fused magnesia is trading between $1,000/tonne and $1,200/tonne FOB Europe, according to an IM assessment on 29 August.

This marks a 58% surge in prices compared with a previous level of $640-750/tonne FOB Europe.

The latest increase follows a first uptick in the price of the commodity in June, from $480-650/tonne to $640-750/tonne.

A shortage of FM volumes available for spot selling has been the leading driver of the price surge.

«We are totally sold out on all of our FM grades,» a large European producer told IM, adding that he has not had any material available «for months».

Another seller added: «We can offer only small trial size lots.»

A third producer also said he does not have anything available outside existing contracts. He added: «Buyers are
desperate to secure their supplies and are ready to accept any price.»

Part of the current issue in availability is the fact that a large share of European production is normally booked by domestic customers who settle yearly contracts. This crucially reduces the volumes left for spot business at times of tight supply.

The situation in China has made matters worse.

Disruptions in production at Chinese facilities – where operations were shut during environmental inspections in previous months, and are very slowly restarting – continue to affect local operations.

Additionally, restrictions on the use of dynamite in mining in some areas of the country led to shortage of high-quality magnesite ore that is used for producing FM. This made production impossible also for those few factories that were able to keep operating during and after the inspections.

The market tightness became apparent as customers found it really hard to source FM volumes from China. In late July, Chinese fused magnesia prices rose by around $200/tonne in one go, exceeding the 2016 levels when export quotas and duties were in place.

At that time, a few European suppliers had already told IM that they were «fully booked».

One noted in late July: «Usually we see a slowdown in demand at this time of year, after strong buying in Q1. Now we are receiving enquiries constantly: we are running at full capacity and cannot meet all the request. This is all down to China being short.»

Stockpiles of material available in Europe – not only FM, but also dead burned magnesia (DBM) and caustic calcined magnesia (CCM) – made sourcing possible for Europe-based consumers in the early months of the year. This kept prices in Europe more stable against rapid price growth in China.

Availability has now become tight for some DBM grades, while CCM remains in better shape overall.

FM is by far the shortest material in Europe now.

Other European magnesia prices have remained unchanged. Calcined agricultural magnesia stands at €240-300/tonne CIF EU ports. Electrical-grade fused magnesia is priced at $1,500-2,450/tonne ex-works UK. Raw magnesite, max 3.5% SiO2 content, is also stable at €65-80/tonne FOB East Mediterranean.

In North America, electrical-grade fused magnesia is trading at $1,700-2,500/tonne ex-works US, while refractory-grade fused magnesia stands at $900-1,400/tonne FOB US.

Further crackdown on environmental rule-breaking plants in Shanxi have slashed calcined bauxite output, pushing prices up over the past fortnight.

Chinese calcined bauxite spot prices increased over the past fortnight as the already tight supply dwindled further amid more governmental shutdown of production facilities.

The Shanxi government announced 11 August that all plants that breached environmental standards in the refractory minerals producing province will be closed by the end of September. This rule followed Tianjin’s plan to relocate mineral processing plants in the port city that was announced at the end of June.

The two measures have brought further disruption to calcined bauxite production facilities. Combined with limited
availability of high-grade ore, output has been slashed.

Although one Shanxi-based producer observed that there are still some plants operating secretly against the authority’s rule, overall production volume has declined sharply.

Buyers in the market have encountered great difficulty in sourcing material over the past fortnight and many suppliers were reluctant to provide quotes amid the uncertainty.

«There is no stock in the country, so it’s not possible to export,» one Tianjin-based trader told IM.

«I’m not making any offer – it is pointless,» he added.

A Europe-based trader agreed: «[It’s] the same situation, [but] it’s getting worse. The price is going up, there is no material.»

All spot prices of refractory-grade bauxite on a FOB Xingang basis increased, according to IM’s price assessment on 24 August.

Spot prices for 85% refractory-grade bauxite (85% Al2O3/2.0/3.15-3.2/0-6mm) increased to $370-390/tonne FOB
Xingang, up by an average of $15/tonne from two weeks ago.

86% bauxite also rose to $390-400/tonne, up $10/tonne compared to a fortnight ago.

87% bauxite jumped to $400-450/tonne, compared to $390-400/tonne previously, while 88% was assessed at
$450-480/tonne, up from $400-430/tonne previously.

Environmental restrictions to get worse

At least two Chinese producers and one distributor believed that environmental inspections in Shanxi, Tianjin and Henan – provinces around Beijing – are likely to intensify in September and October ahead of a major sporting event (the National games) being held in Henan and the 19th national congress of the Communist Party in the capital.

One Europe-based distributor claimed that the authorities could close down most of the industries around Beijing, he told IM.

The government’s crackdown on tax evasion further disrupted the market, said the Shanxi-based producer.
«[There is] more uncertainty. It’s very difficult to know if deliveries are going to happen,» said one Europe-based distributor.

The global steel industry has reached «an important inflection point» that requires steelmakers to consider new strategies to survive, World Steel Association Director General Edwin Basson said May 11.

Speaking during the Eurometal World Steel Distribution & SSC Summit in Dusseldorf, Germany, Basson said current global installed steel capacity, which is about 2.39 billion tonnes, is already enough to meet supply requirements through 2035.

Finished steel demand is likely to be about 1.535 billion tonnes in 2017, up only 1.3% from the previous year, and nearly 1.549 billion tonnes in 2018, an increase of 0.9% year on year. Strong steel demand growth in developing countries will offset stabilizing demand in developed economies, but it means mostly flat overall global demand is likely for the next two decades or more, Basson added.

Combine those factors with declining trends in steel use, due in part to increased production of high-strength lightweight steels and a sharper focus on reuse and recycling, and the outcome is clear.

«We believe that steel demand, in terms of volume, has reached an important inflection point,» he said. «It will continue to grow, but the growth … is going to be much slower than it has been in the past two decades.»

Basson said a ton of steel remains in use for an average of 47 years in Europe, 44 in the U.S. and less than 40 in China. The global average is about 45 years. With technological improvements resulting in less steel being required in many applications and yielding longer lifespans for the material, those averages are likely to increase, he said.

«If it’s only five years that we’re extending the life of steel, it means that we’re pushing that demand forward five years,» Basson said. «As steelmakers and users of steel, we should begin to plan around this [knock-on effect].»
In addition, as emerging economies have developed their own domestic steel industries, and global overcapacity has pushed tons into the export market, trade case filings in the U.S. and Europe, in particular, have increased in volume in recent years. Basson cautioned that such a strategy is unlikely to be sustainable.

«Protectionism can help us in the short term … but it cannot in the long term provide stability in an industry that is driven by global forces,» he said.