REFRACTORIES MARKET OVERVIEW: Strength in Steel Industry Boosts Refractories Demand Worldwide

Asia continues to drive the global refractories market, but opportunities also abound in Eastern Europe, Russia and the U.S.

Above: Refractory bricks used in steel manufacturing. Photo courtesy of RHI AG, Vienna, Austria.

2006 is shaping up to be a very profitable year for refractories manufacturers, with many companies reporting double-digit increases in sales growth. While not immune to high energy costs in the manufacture of their own products, companies in this sector have benefited from the efforts of other heat-processing-related industries to reduce energy consumption through improved insulation. Strong global markets for iron and steel, energy, chemicals, and cement have also boosted refractories demand around the world. Asia-particularly China and India-has continued to drive the market with growth in the high single digits, and solid growth has also been seen in the U.S., Eastern Europe (especially Poland and the Czech Republic) and Russia.

Demand in the Middle East has increased rapidly, despite continued political instability in that region. In October, Minteq International Inc., a wholly owned subsidiary of Minerals Technologies Inc., completed its acquisition of ASMAS, an Istanbul-based producer of monolithic refractories used primarily in the steel industry. Minteq cited ASMAS' rapid growth in Eastern Europe and the Middle East over the past four years, as well as future growth prospects, as the key driver behind the acquisition. "The acquisition of ASMAS offers an attractive option for Minteq to increase its ability to service the steel industries in Eastern Europe and the Middle East, and is fully consistent with Minteq's strategy of direct investment into regions where the steel industry is expanding," said Alain F. Bouruet-Aubertot, senior vice president and managing director of Minteq International.

Glass tank bricks. Photo courtesy of RHI AG, Vienna, Austria.

Opportunities in Steel

The iron and steel sector, which is the biggest consumer of refractories, is expected to remain healthy over the next several years. According to the International Iron and Steel Institute (IISI), apparent steel use worldwide is expected to rise 9% in 2006, from 1029 million metric tons (mmt) to 1121 mmt, followed by a more moderate growth rate of 5% in 2007. Apparent steel use in India is expected to grow 10% in 2006. However, by far the strongest growth in apparent steel use for 2006 comes from China, with a 14% increase.

Steel use in the European Union (EU) for 2006 has been robust, with the construction and engineering industries leading the way. The economic recovery in Germany has contributed to the 8% growth in apparent steel use for the 25 economies included in the EU. IISI estimates that this figure includes some addition to inventories as well as a rise in real steel use.

Growth in the tube and pipe sectors in Russia has contributed to the strong economic growth in the Commonwealth of Independent States (CIS) region. The North American Free Trade Agreement (NAFTA) region has also seen substantial growth, with an 8% increase in steel use. However, one factor that could affect the steel industry in this region, particularly in the U.S., is a recent challenge of antidumping and countervailing duty orders on corrosion-resistant steel from Australia, Canada, France, Germany, Japan and Korea. The challenge is being driven by an alliance of U.S. automakers-including Ford, General Motors, DaimlerChrysler AG and the U.S. arms of Toyota, Nissan and Honda-which contends that the duties are outdated and are affecting American manufacturing competitiveness and U.S. jobs. The International Trade Commission was set to begin reviewing the case in mid-October.

IISI noted that robust demand for natural resources, including iron ore, has contributed to strong growth in South America, with an 11% increase in apparent steel use from 32 mmt in 2005 to a predicted figure of 36 mmt in 2006. Shipbuilding has contributed to a turnaround in Japan's economy, supporting a 1% rise in apparent steel use in 2006.

In 2007, the strongest growth region will again be China, with an increase in steel use from 374 mmt in 2006 to 413 mmt in 2007. However, this figure suggests a more moderate growth in the Chinese use of steel. Stronger credit control and administrative measures introduced by the Chinese authorities will cause apparent steel use to grow by 10.4% in 2007 compared to the 14.4% increase in 2006.

World steel demand is expected to rise 4.9% per year to 2010. Steel demand in India and China is forecast to be 7% per year and 8.4% per year, respectively, during this period, while annual growth in the rest of the world is expected to be 4%. Projections for 2010 to 2015 suggest a 4.2% annual growth in worldwide steel demand, with growth reaching 7.7% per year for India and 6.2% per year for China during the same period.

Other Markets

Strength in the glass industry-particularly the construction industry in China and India, as well as flat-screen television panels and solar panels worldwide-has also contributed to increased refractories demand, along with growth in the nonferrous metals, energy, chemical and cement markets. Cookson Group noted that it expects to see double-digit growth in the solar panel market over the next couple of years; the company has begun investing in increased manufacturing capacity to meet the anticipated higher demand. Austria-based Rath Group AG opened a new refractory plant in Milledgeville, Ga., in July 2006 to serve the energy and chemical markets. Operated by Rath Refractories, Inc., the plant produces alumina-silica brick and shapes.

A Competitive Environment

Despite the positive outlook in steel and other refractories-consuming industries, challenges remain. Consolidation in these industries is expected to continue as companies look for ways to contain costs. Additionally, China is experiencing an increase in refractories overcapacity. As a result, competition among refractories producers will remain fierce in the coming years.

Companies are focusing on cost-reduction measures and product innovations to ensure continued profitability. For example, Cookson has embarked on projects through its Vesuvius division to further increase capacity in China and Mexico, while closing one of its smaller facilities in the U.S. In China, the company is investing £10 million ($19 million) in three new, highly efficient facilities to supply the growing foundry, glass and solar cell markets. The company also plans to invest over £10 million in building two new production lines at its existing facility in Skawina, Poland. One line will serve as its main European center for slide-gate production based on the newer resin-bonded alumina technology, and the second as a new solar crucible facility. Meanwhile, the company plans to close its existing slide-gate facility in Goole, UK, by mid-2007.

Morgan Crucible's Thermal Ceramics business has also implemented further restructuring plans to continue streamlining its infrastructure. While these plans weren't specified, they undoubtedly include further shifting of manufacturing capacity to lower-cost regions. Recent investments by the company have included the formation of a 75% joint venture with Beijing Yingtelai Textile Corp. in Beijing, China; a 51% joint venture with Shandong Luyang in China to manufacture high-temperature sol-gel fibers; a 51% joint venture in Yekaterinburg, Russia, with Sukhoy Log to produce ceramic fibers; and the acquisition of the ceramic fiber division of Vesuvius, with plants in Erwin, Tenn., and Skawina, Poland. The company also noted that the launch of a new high-temperature bio-soluble fiber (SuperwoolTM 607HT) has enabled Thermal Ceramics to adapt to the changing needs and environmental demands of the European and global markets.

While the future looks promising, refractories manufacturers will need to remain vigilant to protect their market share.

Editor's note: The foregoing information was compiled from personal interviews and publicly available information in annual reports and news releases.

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