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.

MagForum 2017 analyses latest issues and spotlights potential newcomers and markets

Key takeaways

– China: supply impact issues to beset 2017-18; controversial trade reforms proposed

– New supply sources and capacities: Saudi Arabia (DBM+CCM), Australia, Canada

– Refractories: steady growth in steel demand; good cement outlook for certain regions

– Market opportunities in hydrometallurgy, flame retardants, environment, cement board,welding, and pulp and paper.

BRUSSELS — The European Union has set duties of up to 35.9 percent on imports of hot-rolled flat steel from China to counter what it says are unfair subsidies in a finding challenged by Beijing.

The European Commission (EC), which conducted an investigation on behalf of the 28 EU members, found a number of Chinese companies had benefited from preferential lending from state-owned banks, grants, tax deductions and the right to use industrial land.

«We are continuing to act, when necessary, against unfair trading conditions in the steel sector, and against foreign dumping,» EU Trade Commissioner Cecilia Malmstrom said in a statement. She added that she hoped global discussions on steel overcapacity would eventually convince China to end unfair schemes to ensure a level playing field for all steel producers.

China’s Commerce Ministry said it «strongly» questioned the legitimacy of the EU decision, adding the European Commission had ignored the fact China’s steel exports to Europe had declined in 2016. It said it would take all necessary measures to protect the interests of Chinese firms.

The EU had already set in place anti-dumping duties, to counter excessively low prices, which it has now adjusted to a range of between zero and 31.3 percent. «Today’s announcement marks a notable shift in the EC’s policy stance by taking into account the ‘threat of injury’,» investment bank Jefferies said in a note.

Jefferies said the case could have positive implications for imports of other types of steel, adding that it expected European steel industry group Eurofer to ask the Commission to launch more anti-subsidy investigations.

The bank noted that while Chinese hot rolled coil imports have fallen 89 percent in the year to March, and cold rolled coil imports, also protected by duties, have declined 46 percent, other product categories like coated sheet have soared. Hot-rolled flat steel is used in shipbuilding, gas containers, pressure vessels, tube and energy pipelines.

The targeted companies include Benxi Group [LNGOVB.UL], with overall anti-dumping and anti-subsidy duties of 28.1 percent, Hesteel Group, with a rate of 18.1 percent, and Jiangsu Shagang at 35.9 percent. The duties, applicable for five years, will take effect from Saturday, the EU’s official journal said.

The EU has taken over 40 anti-dumping decisions to aid European steel producers, with measures on cold-rolled flat steel and stainless steel from China. It also has an ongoing investigation into hot-rolled steel imports from Brazil, Iran, Russia, Serbia and Ukraine.