Dr Richard Flook - Shinagawa Refractories Australasia Pty Ltd Refractories in the Asian century March 2012
Refractories in the Asian century March 2012
Agenda The Asian Century- long term view The Asian Century- short term view Key refractory markets Minerals for refractories
Agenda The Asian Century- long term view Yue Minjun and the Symbolic Smile
Economists view global l top 10 economies Rank 1870 2010 2050 1 China USA China 2 India Japan USA 3 United Kingdom China India 4 USA Germany Japan 5 Germany United Kingdom Germany 6 France France United Kingdom 7 Italy Italy Brazil 8 Japan India Mexico 9 Spain Brazil France 10 Indonesia Canada Canada Source: HSBC February 2012
Economists view Asian top 10 economies* Rank 1870 2010 2050 * Global 1 China (1) Japan (2) China (1) rank in brackets 2 India (2) China (3) India (3) 3 Japan (8) India (7) Japan (4) 4 Indonesia (10) South Korea (11) South Korea (13) 5 South Korea (24) Indonesia (21) Philippines (16) 6 Vietnam (28) Thailand (29) Indonesia (17) 7 Thailand (33) Singapore (31) Malaysia (21) 8 Philippines (35) Malaysia (38) Thailand (23) 9 North Korea (36) Philippines (43) Pakistan (30) 10 Sri Lanka (39) Pakistan (44) Bangladesh (31) Source: HSBC February 2012
Di Drivers are population & urbanisation Source: UN World Urbanisation Prospects 2010
Demographics will also influence demand d Source: Holcim January 2012
and dthen the rise of fafi Africa Asian population 4.5B 2100 African population 3.5B 2100 Source: UN World Population
Global l construction ti market - up 67% by 2020 Source: Holcim January 2012
Construction ti market global l ranking Rank 2010 2020(E) 1 China China 2 USA USA 3 Japan India 4 India Japan 5 Germany Canada 6 France Indonesia 7 Canada France 8 Spain Germany 12 2010 9 Italy Australia 11 2010 10 United Kingdom Spain Source: Holcim October 2011
Agenda The Asian Century- long term view The Asian Century- short term view
IMF- Global l recovery stalls, downside risks intensify if Global GDP Growth (Percent; quarter over quarter, annualized) Source: IMF WEO Outlook January 2012
Slow recovery to lower levels l 2500 2000 1500 1000 500 US housing starts ('000) 0 2006 2012 2013 2014 2015 2016 Source: McGraw Hill December 2011
Structural t drivers of demand d remain intact t Cautious on the short term economic outlook for the developed world and Europe in particular No simple solution for the structural imbalances and high levels of sovereign indebtedness in the OECD China needs to implement a new development strategy in its next phase of development The longer term structural drivers of industrialisation and urbanisation in the developing world remain intact Summary: Short term will be volatile but long term demand is unchanged Source: BHP Billiton February 2012, World Bank China 2030
Agenda The Asian Century- long term view The Asian Century- short term view Key refractory markets 7% Steel Cement & lime 70% Nonferrous Ceramic Glass Other
Average key market growth forecasts 2012 2012 growth forecast Steel Cement EU 0% -7% NAFTA 5% 0% China 5% 5% RoW 6% 5% China slowing but soft landing expected Global l 5% 25% 2.5% Source: Arcelor Mittal, LaFarge February 2012
Steel applications in China & the world 20% China World 32% 14% 6% 13% 49% 18% 24% 24% House building Engineering construction Machinery Motor vehicle Other Construction Machinery Motor vehicle Other Source: KPMG, OECD & Eurofer
Ub Urbanisation & power are steel lintensive i Source: Rio Tinto November 2011
World steel production - growth 2016 ~5% pa Source: World Steel Association, IMF and author estimates
China steel growth to continue Source: BHP Billiton September 2011
China steel consolidation - top 10 = 70% 80% eel n otal ste duction % of to prod 60% 40% 20% 0% 2005 2010 2015 2020 Top 5 producers Top 10 producers Source: CISA
China steel production 5% CAGR to 2015 25 CA AGR(% %) 20 15 10 5 0 10th Five Year 11th Five Year 12th Five Year Plan (2001-2005) 2005) Plan (2006-2010) 2010) Plan (2011-2015) 2015) Source: KPMG May 2011
Indian Steel Capacity- 5% CAGR to 2050 500 400 Million 300 Mtpa 200 5% CAGR 100 0 2000 2010 2020 2030 2040 2050 Capacity Production Source: OECD Steel Committee December 2011
More 100Million MT pa steel companies World top 5 steel producers(million MT) 1970-2010 Rank 1970 1980 1990 2000 2010 1 Nippon Steel 34.6 Nippon Steel 32.9 2 US Steel 28.5 US Steel 21.1 3 British Steel 25.6 4 5 Bethlehem Steel Nippon Kokan 18.7 FINSIDER 13.7 Nippon Steel USINFOR SACILOR 28.88 Nippon Steel 28.4 23.3 POSCO 27.7 Arcelor Mittal Hebei Steel 90.6 52.9 14.0 POSCO 16.2 Arbed 24.1 Baosteel 44.5 British Steel 13.8 LNM 22.4 Anben Steel Nippon Bethlehem h Wuhan 12.9 13.6 USX 12.4 Usinor 21.0 Kokan Steel Steel Average 24 19 19 25 53 40.3 36.5 Source: www.worldsteel.com & KPMG
Cement Top Three 2010 (Million MT) World Production World Consumption 2010 Exports 2010 2008 2830 China 1851 Turkey 19 2009 2998 India 212 China 17 2010 3294 USA 69 Thailand 14 World Capacity China Capacity Growth to 2025 Lafarge 215 CNBM 200 East Asia 1561 Holcim 212 Anhui 150 SW Asia 285 Heidleberg 116 Jidong 90 SE Asia 139 Source: Lafarge
India- the next cement giant Source: Lafarge
Agenda The Asian Century- long term view The Asian Century- short term view Key refractory markets Minerals for refractories
World refractory consumption-forecast t Key assumptions: previous steel forecasts & China reduces refractory consumption to 15Kg/tonne steel Author estimates
Refractories global l consolidation Source: PRE
World refractory sales 2010 ( B) Author estimates
Chinese refractory sales 2010 ( B) Author estimates
The refractory difference- steel is key driver 2010 China Japan Total refractory consumption (million Mt) 26 1 % monolithic refractories 38% 67% % steel refractories 61% 79% Steel production (million Mt) 627 110 Kg refractory/ Mt steel 23 7.5 Author estimates
China steel consumption to 2040 Source: Rio Tinto November 2011
Japan refractory history = China future? Refractory pro oduction ( 1000 t) 4,000 3,000 2000 2,000 1,000 Shaped Refractory Unshaped Crude Steel Total Refractory 120 100 80 60 40 20 Crude steel pr roduction( 106t) China 2012? 0 1954 1964 1974 1984 1994 2004 0 Source: Shinagawa Technical Report 54 2011
China refractory production & trade Refractory Products (Million MT) 2007 2008 2009 2010 2011 Production 29.1 24.2 24.5 28.1 28.8 Exports 20 2.0 29 2.9 19 1.9 23 2.3 20 2.0 Imports 0.1 0.1 0.1 0.1 0.1 Apparent consumption 27.2 21.4 26.4 25.8 26.9 Source: Trademap & Refwin
China total t refractory exports 2010 ~US$1.6B 14% Bricks 12% Shapes 74% Monolithics Source: Trademap
China refractory brick exports 2001-2010 6000 '00 00tonne es 4000 2000 20% 45% 0 2001 2003 2005 2007 2009 China Rest of world Source: Austrade Trade Map
China refractory production-the th issues Inefficient - too many, too small Over 2000 refractory companies(2009) Only 6 companies out of 1400 with sales over CNY300Million in 2003 High energy consuming, high polluting operations, Many use coal for fuel Many with minimal dust collection for crushing and grinding Most are labour intensive with future OH&S issues Rapidly increasing labour (15%pa) and energy costs (4c/KwH cf EU 19c/KwH) Unsustainable Exhaustion of high quality raw material resources Overcapacity leading to intense local competition, marginally costed exports and Inadequate profit margins Source: Jie-Hua Liu, Refractories Worldforum Volume 3 2011
Agenda The Asian Century- long term view The Asian Century- short term view Key refractory markets Minerals for refractories continued
Major world refractory raw material sources Source: PRE MagMin 2011
China refractory raw material exports Tonnes ( 000) 2006 2007 2008 2009 2010 Fireclay 1072 1090 906 421 848 Raw materials for ~25% of refractory production outside China BFA & FA 694 844 820 315 789 DB magnesia 870 956 710 358 730 Fused magnesia 345 343 402 186 470 Silicon carbide 235 243 232 118 223 Flake graphite 138 187 194 98 189 These materials are ~ 85% of total refractory raw material exports of ~4M tpa Source: Trademap
China refractory raw material exports-issues Inefficient Over 1600 companies exported refractory raw materials from China Only 4 companies exported more than 100,000 tonnes in 2010 High energy consuming, high polluting resources resulting in, export tax rebate benefit cancelled for all 11 types of raw materials 7 types of raw materials charged export tax with a tax rate from 5% to 20% export quotas required for magnesite, clay and silicon carbide Unsustainable Decreased high h grade resources mainly due to over-mining i (eg graphite and magnesite) Large amount of export beyond the capacity of reserves in China Government policy of exporting value added products rather than raw materials Competition from alternative uses for raw materials Source: Wang Yuanjiang, 1st China International Refractory Production & Application Conference May 2011
Refractory producers target t raw materials Magnesita targets 90% raw materials self sufficiency over 3 years November 2010 RHI targets 80% raw materials self sufficiency in 5 years February 2011 Source: IM Magazine
China Five Year Plan & nonmetallic minerals Mineral production (million tpa) 2010 2015 Growth (%pa) Flake graphite 0.65 0.95 7.9 Bentonite 35 3.5 45 4.5 52 5.2 Feldspar 20 25 4.6 Wollastonite 0.65 0.8 4.2 Limestone (cement) 1900 2300 3.9 Kaolin 3.2 3.8 3.5 Silica (glass) 26 30 2.9 Talc 2 2.2 1.9 Magnesite 15 16 1.3 Source: Refractories Window January 2012
World magnesite reserves~3.6 billion tonnes 2% 3% 5% 9% China 2% DR Korea 15% Russia 23% Slovakia Turkey 21% Australia 20% Brazil India Other Refractories ~ 83% of magnesite; non Chinese resources will be developed Source: Annex V EU Report of the Ad-hoc working Group on defining critical raw materials July 2010
China- aluminium i or refractory bauxite? Bauxite mining in China is increasing but only supplies 70% of demand for alumina needed for aluminium production Alumina industry in China competes with bauxite for refractory use - outcome will depend on future Chinese aluminium production Source: Alumina Ltd 2010
China- batteries or refractory graphite? Demand for lithium-ionion batteries will increase rapidly for battery powered vehicles Only flake and synthetic graphite (made through an expensive process from petroleum coke) can be used in lithium- ion batteries Source: IM Magazine
Zircon for tiles or refractories? Demand for zircon as opacifier for ceramic tiles and for chemicals will exceed supply High zircon price will restrict its application to the higher value markets Source: Alkane & TZMI
Vietnam an alumina giant Bauxite reserves in Vietnam may total 8-11 billion tonnes Vietnam s reserves could be the world s largest. The USGS ranked Guinea with 7.4 billion tonnes, while Australia has 6.2 billion tonnes. Crude bauxite reserves in Vietnam are primarily lateritic bauxite and are mainly in the south. Bauxite reserves in south Vietnam are measured at 5 billion tonnes. Government plans are to produce 650,000tpa chemical grade alumina and 6.3m tpa aluminium by 2020-2025 Source: Company Reports
Indonesia planning refractory grade alumina PT Antam Tbk plan to produce chemical grade alumina from the Tayan bauxite deposit in west Kalimantan Estimated project cost is US$450M Capacity is 300,000tpa chemical grade alumina Joint venture of Antam (80%) and Showa Denko (20%) Commercial production March 2014 STOP PRESS: Indonesia bans metal ore exports from 2014 bauxite exports in 2011 were 40 million MT. Source: Company Reports
The refractory outlook Low volume growth in global refractory demand due to reduced specific consumption & higher h performance raw materials Consolidation of Chinese & global refractory producers Excess brick capacity in China and increased Chinese brick exports Increased environmental, power & labour costs in China Reduced refractory raw material exports and at higher prices from China Increased government control and taxation revenue from all raw materials Ongoing backward integration of refractory producers into raw materials Good times ahead for quality refractory raw material producers outside China
Thank you Köszönöm!
Profile Dr Richard Flook is the Managing Director of Shinagawa Refractories Australasia Pty Ltd, a manufacturer and supplier of quality refractory and insulating materials. Previously, he was the CEO of Omya in Australia and New Zealand. Richard has also been involved in the development of minerals businesses with ACI, Steetley Industries, Anglo American and Normandy Mining. Richard has over 30 years of experience in profit growth and cost control and new business opportunities including trading, planning, strategic analysis, and market development in the minerals industry and has been involved in managing and developing minerals operations and businesses in Australasia and Asia. Ri h di F ll fth A t l i I tit t fmi i & Richard is a Fellow of the Australasian Institute of Mining & Metallurgy, the Australian Institute of Company Directors and the Australian Institute of Energy. He is a graduate of Sydney University (Ph.D) and the University of NSW (M.Comm)