TAK Industrial Mineral Consultancy. The Outlook for Refractories as Markets for Bauxite and Alumina

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1 Ted Dickson TAK Industrial Mineral Consultancy The Outlook for Refractories as Markets for Bauxite and Alumina

2 Bauxite and Alumina in Refractories World Refractories production ~39 million T Calcined Bauxite 1.6 million T BFA 1.2 million T Requires 1.4million T calcined bauxite Alumina 1.9 Million Tonnes Tabular, WFA, CAC, calcined, spinel, mullite, ceramic fibres Refractory clays and Magnesia still largest components of refractories

3 '000 Tonnes Non-Metallurgical alumina Supply Estimates 7,000 6,000 5,000 4,000 3,000 2,000 1, Total IAI Chemical Alumina Estimated Calcined Alumina

4 Steel as a Growth Driver Steel As much as 70% of all refractories and probably a higher proportion of alumina Total production 1.7 billion tonnes Total refractory consumption ~26 million tonnes Average unit consumption 15 kg / tonne steel 7 kg Japan, 10 kg Europe & North America, 20kg+ China but expected to decline significantly in next 5 years.

5 MILLION TONNES REFRACTORIES HUNDRED MILLION TONNES STEEL 50.0 World refractories v Steel production Refractories production World Steel production World

6 Million tonnes refractories Hundred Million tonnes steel 35.0 Steel v refractories China Refractories production China Steel production China

7 Million tonnes refractories Hundred Million tonnes steel 18 Steel v refractories ex China Refractories production ex China Steel production ex China

8 Trends in Steelmaking Refractories Markets still subdued Picking up in USA Slow recovery in Europe China total refractory consumption declining and markets suffering from lower demand and overcapacity BUT Chinese alumina consumption in refractories growing Usage of Alumina per tonne of steel kg ROW but <0.5kg China Chinese Steel production 820 million tonnes so 0.1kg per tonne increase = 82,000 tonnes An increase in unit consumption by to 0.9-1kg per tonne feasible by 2020 requiring more than 400,000 tonnes increase in tabular/white fused/calcined alumina demand Current weak demand in China may delay the conversion to higher performance refractories

9 Other Market Drivers Cement and Lime with over 4 billion tonnes produced but consumption per tonne <1kg so total ~4 million tonnes refractories or 10-11% of total. Alumina gained ground due to replacement of magnesia chrome in burning zone by spinel or dolomite. Process of change complete in developed countries, progressing in China, India etc Glass, Non-Ferrous Metals, Ceramics, Chemicals 1-5% each and much smaller influence on total demand but often high value added refractories

10 Chinese Refractories Situation Considerable efforts to modernise the industry Overcapacity both in refractories and raw materials Consolidation of the industry required as happened in Europe/North America/Japan over several decades Many of the 2000 companies active in 2009 will merge or close Strong trend towards reduced unit consumption in steel and move towards cleaner steels Total volumes of refractories declining but higher quality and value added Costs increasing for labour, fuel and environmental regulation Low profit levels and smaller producers unable to meet new standards of quality or invest in cleaner production processes Domestic demand weak Exports to EU challenging due to Euro/$ exchange rate

11 Raw Material Trends- Bauxite Refractory bauxite resources still limited primarily to China and Guyana. Many Chinese producers stopped production in 2014 Low domestic demand, higher costs and increasing enforcement of environmental regulations Producers do not have the capital to upgrade operations and many face permanent closure Companies making losses and cash flow poor Longer term there is a lot of excess capacity for bauxite and BFA in China that can be revived to meet demand both domestically and internationally Guyana, still and important supplier for USA and EU First Bauxite project still requiring finance and now plans to put calcining plant in Louisiana

12 Raw Material Trends Alumina Production and capacity more widespread than bauxite. Starting point Bayer alumina but considerable added value for specialty aluminas Relatively mature markets in Europe/North America and Japan, growing in China from low base Chinese industry moving to higher performance refractories and cleaner steels Development may be slower than initially estimated because of current slowing of economic growth and steel production but considerable development of tabular alumina capacity already

13 Chinese Tabular Chinese domestic producers of tabular alumina Manufacturer Capacity ( 000tpa) Production ( 000tpa) Almatis (Qingdao) Zibo Taibeilier Aluminium & Magnesium Jiangsu Jinghui Refractories Zhejiang Zili Shandong Kunpeng Technology Pingxiang Huangguan Chemical Material Zhonglu Group Jinlu Refractory Material HanZhong Qinyuan New Material Zhengzhou Lucheng Sanxing Total Data: Taken from Paper presented by Richard Flook at the 3rd Asian Bauxite & Alumina Conference 2013 Capacity and production at lower levels in 2014

14 Outlook short term Growth subdued in many markets with steel production still below pre-recession levels US growing stronger ~3-4% steel growth EU still generally weak ~2% total but variable from country to country and still considerable uncertainty Bauxite and BFA markets in China weak with steel production and general economic growth limited and construction markets depressed Alumina market growing in China due to shift to higher performance refractories and cleaner steels, although perhaps slower than initially predicted Low changing regional competitive situation

15 Outlook longer term China China Chinese refractories, refractories raw materials and steel industry to consolidate Growth rates uncertain in current economic situation but steel growth rates expected to fall below 2% per annum by 2018/19 Refractory grades of alumina demand to grow by double digit growth rates during transition to lower specific consumption with higher performance refractories and move to cleaner steels, speed and timing of transition uncertain given current economic situation in China.

16 Outlook longer term ROW Still considerable regional uncertainty Recovery from recession has been slow Once recovery happens growth to revert to 1-2% per annum, EU, NA, Japan Low energy costs in the USA may change industry dynamics resulting in faster growth although differential with ROW has declined in recent months