Executive Summary

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Magnesia – Global Market Analysis

Production of fused and dead burned magnesia witnessed a setback during April-Nov 2017 with majority of the plants going offline or having their operating rates reduced to 20-30% owing to Hurricanes in the US, logistic issues in Europe and most drastic being the environmental regulations in China.

  • Global consumption of dead-burned and fused magnesia declined slightly during the first eight months of 2016 compared with that in the same period of 2015, as world steel production stabilized after declining in 2015. However this was compensated in the later half of 2016 with the manufacturers increasing their operating rate. 
  • In 2017, production of Magnesia around the world witnessed a slump, owing to several reasons with the major being the environmental regulations imposed in China with regards to mining activities.
  • This production glut continued until mid November 2017, post which several players upgraded their production technology to environmental standards while few players came back online with a very low utilization rate in order to keep in line with new regulations with regards to waste disposal.

Magnesia – Global Demand by Application Analysis

  • Dead-burned magnesia and fused magnesia were majorly used for refractory products, with steel industry being the leading end use
  • Cement and glass were also other applications where dead-burned magnesia and fused magnesia was used 
  • Demand for magnesia refractory products for glass and non-ferrous metals witnessed a decline during the first half of 2016.However, this had little impact on the overall decrease in magnesia consumption as it accounted for an overall small share
  • Fused Magnesia is largely being considered to replace D.B. Magnesia in several refractory applications, owing to higher magnesia content, higher density, and larger crystal size
  • Although the cost of Fused Magnesia is comparatively higher, its longer campaign life reduces the overall cost of production

Magnesia – Global Demand by Region Analysis

Fused magnesia has replaced dead-burned magnesia in a few steel furnaces, and this trend is likely to continue as more fused magnesia capacities come on line. Around 130,000 MT/year of FM is expected to come online in Russia by 2020

  • Asia-Pacific, mainly China was the largest Magnesia (Fused and Dead Burned) producing region. China produces roughly 70-80% of the total Magnesia produced in Asia
  • Brazil is one of the top four Dead Burned magnesia producers along with Slovakia, Turkey and Russia offering Dead Burned Magnesia grades as an alternative to China
  • These countries witnessed a large increase in Magnesia demand in 2017 as many refractory consumers turned towards these regions owing to the unpredictability and reliance on Chinese Magnesia supply post the environmental crackdown

North America – Magnesia Market Dynamics

Consumption of refractory products in North America grew by around 4-6% on a Y-o-Y basis during the second half of 2016, driven by improving performance in the stainless steel segment, coupled with market share gains in both stainless and mini mills. 

  • Domestic consumption of dead-burned magnesia witnessed a fall owing to increased use of higher quality fused-magnesia in refractories
  • This was supported by the reduction in crude steel production in the United States in 2016 owing to increased imports of steel from China 
  • There was a dip in production output during August-October 2017 owing to hurricanes that lashed the U.S region 
  • Supply also took a hit with reduced imports from China owing to several plants shutting down indefinitely during the same period

North America – Magnesia Demand by Application

Magnesia use in Refractories was the largest application with growing utilization of fused magnesia in refractory application when compared to Dead Burned magnesia.

  • Dead Burned magnesia is majorly used in refractory products with steel, cement and glass being the major industries
  • Production for Dead Burned Magnesia in the first half of 2016 witnessed a fall of around 13% on a H-o-H basis owing to increased imports of Magnesia from China coupled with decrease in demand for refractory products

Europe – Magnesia Market Dynamics 

Europe Magnesia supply has always been higher than the demand owing to higher operating rates set by the producers. In addition, domestic presence of several players of both Fused and Dead Burned magnesia to cater to the demands also contributes to undisrupted supply conditions.

  • In Europe, Magnesia market witnessed over supply conditions in 2015 and 2016. Several players reduced their operating rates. For instance, RHI reduced production of Fused Magnesia at its Porsgrunn plant in Norway from 80,000 MT/year to 35,000 MT/year
  • In addition, the company also shut down production at its German magnesia raw material site in 2015 and assigned the production to other plants
  • However, supply was disrupted in 2017 owing to Rail road disruption in northwest Europe and reduced availability of raw material (graphite electrodes) through imports for the manufacture Fused Magnesia owing to government crackdown on pollution that led to the closure of some electrode plants

Europe – Magnesia Demand by Application

  • The use of Dead Burned Magnesia in the cement and steel industry for refractory applications is witnessing a dynamic shift to Fused Magnesia
  • Magnezit Group is expected to complete its plant expansion in Russia by 100,000 MT by 2019 along with another expansion at its second plant to 50,000MT by 2020
  • The major application for Magnesia is into refractories, mainly in the steel and cement industries
  • Graphite rods are imported majorly from China which is used for the manufacture of Electrical grade Fused Magnesia, which are used in several electrical applications

Asia Pacific – Magnesia Market Dynamics 

  • Production was largely impacted in 2017 with roughly 65 percent Magnesia capacity taken offline due to new enforced policies on the environment and on health and safety regulation
  • The shutdowns lasted from April-Mid December 2017, with several players coming back online after upgrading their production technologies or have limited production to meet the environmental safety norms
  • In 2013-14, global oversupply conditions led to drastic reduction in exports to Europe and the U.S from Asia, majorly China. This led the Chinese manufacturers to cut down on the operating rates which was met with low demand from downstream sectors
  • Consolidation of the refractories industry was also encouraged in order to close excess capacity and limit production
  • Currently, production has returned to stable levels, however, cautious buying activities from the U.S and European buyers have been keeping production in check
  • Utilization rates are expected to be improve in the coming years with likely growth in the construction and housing sector thereby increasing demand for Magnesia from these industries

Asia Pacific – Magnesia Demand by Application

  • Refractory application is the major application for magnesia in Asia, with majority of it going into fireclay brick and MgO brick application
  • Demand for cement and steel applications in construction industries are also likely to grow in the coming years giving rise to Magnesia demand
  • Crackdown on several magnesia producing plants in the past 5-7 months has forced several plants to shutdown or upgrade their production technology
  • Non- refractory applications like animal feed and agriculture and likely to witness a growth of roughly 4-5% on a Y-o-Y basis during 2018-2019

Latin America – Magnesia Market Dynamics 

  • Majority of the Latin American demand is catered via imports from China and North America
  • Hurricanes Irma and Harvey in the U.S. in North America and Environmental scrutiny in China, limited the supply of Magnesia availability in the Latin American market
  • Latin American Magnesia production is mainly concentrated in Brazil with Magnesita being the largest producer of Dead Burned and Fused Magnesia
  • Production was slightly affected by the reduction in imports from China owing to plant shutdowns in the region
  • Demand for Magnesia is likely to witness an increase owing to rapid urbanization in developing economies of Latin America

Latin America – Magnesia Demand by Application

Demand for Dead burned and Fused Magnesia in refractory applications of steel and cement is likely to witness an uptrend owing to rapid urbanization in developing economies of Latin America

  • Growth in demand for Fused and Dead Burned Magnesia is likely to be driven by its downstream applications
  • Fuelled by the growing urbanization and improving economy in Latin America, construction, housing and urban development activities like building of roads and pavements is anticipated to create a demand for the cement, glass and steel industries
  • Use of magnesia in refractory applications like steel ladle linings, fire bricks and MgO bricks is also likely to witness an increase

MEA – Magnesia Market Dynamics 

  • Improvement in living conditions and establishment of roads and buildings is likely to support magnesia growth 
  • In addition, rapid industrialization in Africa and parts of the Middle East like Saudi Arabia is most likely to generate a demand for fused and Dead Burned Magnesia during the forecast period
  • Demand for Fused and Dead Burned Magnesia is majorly catered via imports from Europe and China
  • 2017 witnessed a drop in supply owing the poor market condition in China because of the environmental shutdowns
  • The Fused and Dead Burned magnesia market are likely to grow at a growth rate of 2.0-2.5% and around 3.0%, respectively fuelled by the anticipated increase in demand from the construction sector

MEA – Magnesia Demand by Application

Improved urbanization prospects coupled with increasing industrializing opportunities have created a plausible market for the growth of Fused and Dead Burned Magnesia

  • Abrasives and Car brakes followed by road patching are expected to be the fastest growing non-refractory downstream applications for Dead Burned magnesia 
  • Improving living conditions in Africa have given rise to construction opportunities thereby driving the demand for Magnesia to be used in the Steel, Cement and Glass refractories

Magnesia Cost Structure

  • Raw material and utility costs (energy) are the major cost driver which contributes ~80 percent of the production cost of fused magnesia 
  • Price movements of electricity will have a considerable impact on the fused magnesia production cost and margins 
  • Utilities costs includes electricity and water. Fused magnesia production process is very power intensive with electricity consumption varying between 3500-4500 kWh/ton
  • Labor cost is highest in US and Europe due to higher hourly wages. Asia has the lowest labor cost compared to other regions

Price Analysis – Magnesia (Fused and D.B)

Market Summary

  • Prices of Fused and Dead Burned Magnesia in Europe continued to roll over for the month of June 2018
  • Prices of Magnesia D.B. 97 percent min 0-30mm FOB China witnessed a fall of ~1.0 percent on a M-o-M basis during June 2018 on the back of low demand and sufficient supply of magnesia in the region
  • In addition, low activity of downstream customers in refilling stocks with limited transactions in the market also contributed to fall in price
  • The easing pressure of the Chinese government on the mining activities has also contributed to the fall in price of Magnesia in the region

Market Outlook

Europe

  • Prices are anticipated to roll over on a Q-o-Q basis during Q3 2018
  • The steady prices likely due to the moderate demand and sufficient availability of magnesia from domestic as well imports from China post the environmental crackdown

Asia

  • Prices of Magnesia D.B. 97 percent min 0-30mm FOB China, are expected to witness a fall of around 2-5% on a M-o-M basis in the month of July 2018
  • The prices are also expected to fall by 3-6% on a aQ-o-Q basis during Q3 2018 likely due to speculations of explosives being distributed to mine magnesite in Q3 32018. This news has curtailed customers to have a wait and watch attitude towards the market, thereby reducing the purchase volume of magnesia.

Future Scenario

Are the price points expected to come down to normal levels?

  • The demand is anticipated to improve in the coming years with likely growth in the construction and housing sectors
  • Demand for magnesia for use in steel, cement and glass is likely to improve with increasing demand from industries
  • Though the demand is likely to increase and production likely to return to close to normal levels, the falling of price by a drastic margin is very unlikely
  • The prices of Fused Magnesia, for example has witnessed an average increase of around 120-190% in December 2017, compared to May 2017 prices; while Dead Burned Magnesia witnessed a 83% increase in Europe and 223% in China during the same period
  • With such great increase margins taking place over a span of 5-6months, it is highly unlikely for the prices to return to normal levels
  • The Chinese government has still not eased the regulations for pollution control, and suppliers will continue to invest in R&D to upgrade their technologies to adhere to Government norms 
  • We expect the players to continue quoting the same prices and/or increase their prices further to recover the losses due to shutdowns and up gradation

UPDATE

  • With the US looking to impose heavy tariffs (roughly 25%) on imports of steel into the US, trade is likely to be affected as all the other countries have expressed disappointment over the move
  • Countries like Canada, Brazil, China and Europe are likely to be the largely impacted countries, and with the tariffs, if applied, would likely increase costs of automotive, machinery, construction, energy and other industries in the US
  • Moreover, with the import cost expected to increase, and the domestic Steel industries are anticipated to take a few years to cater to the 100% domestic demand leading to an overall increase in prices for the downstream segment and also the upstream raw material segment in the near future