Ceramic Industry

Refractories Market Overview: Refractories Industry Sees Mixed Results

December 1, 2005


According to Cookson Group plc, headquartered in London, England, global steel production surpassed 1 billion metric tons for the first time in 2004, rising 9% over the previous year, while production in the U.S. and Europe increased 5%. China continued to be the world's largest steel producer, accounting for more than 25% of total world production, and other emerging steel markets-including India, Russia, Ukraine and Brazil-remained strong. The company reported that market conditions in the foundry and aluminum sector were similar to those seen in the steel industry, and that furnace relining and glass output remained solid in the glass sector. Demand for solar energy-and thus for the glass sector's crucibles used in the manufacturing of photovoltaic cells-was robust. As a result of these trends, Cookson's Ceramics division (including its Vesuvius subsidiary) posted a sales increase of 11% in 2004 to £739 million (~US$1.4 billion). The company continued to see gains in the first half of 2005, citing a 28% rise in steel production in China and a 12% rise in India as key factors.

Morgan Crucible Co. plc (also headquartered in London) said that its Insulating Ceramics business, which includes Thermal Ceramics and Crucibles, posted a 1.9% increase in revenues on a constant currency basis to £249.8 million (~US$481.3 million) in 2004, along with a slight increase in operating margins in 2004. The company said that market demand and sales in the Americas improved, but the European business suffered with the weakness of the industrial sector and the strength of the euro against the dollar. Sales in Asia grew strongly, with market share gains and strong demand across the region, particularly in China. In fact, sales from its Crucibles division to China increased by nearly 80% in 2004, albeit from a low base. In the first half of 2005, the company saw sales in its Insulating Ceramics business rise 7.8% to £129.0 million (~US$248.5 million) compared to the same period last year, largely due to the continued worldwide expansion of Thermal Ceramics. The formation of a 70% joint venture with Hubei Kailong in China, along with expansion and modernization of facilities in China, India, Australia and Korea, enabled the division to see a 17% sales growth in Asia compared to the same period in 2004.

However, not all refractories producers have fared so well. Dyson Group plc saw sales in its Thermal Technologies division fall 9.7% in 2004 to œ30.1 million (~US$58 million) compared to 2003, although tight management control allowed the company to see improvements in both its profit and operating margins. The company reported that high energy costs and a decline in the businesses serving the glass industry affected the business in early 2005. Dyson is closing one manufacturing facility serving the glass industry and is establishing a small manufacturing base in China to serve the global tableware industry with low-cost product both within the growing Far Eastern industry and elsewhere. The company said it would close or sell any business or product area where financial results are unlikely to reach an acceptable level.

Corhart Refractories Co., a division of Saint-Gobain Ceramics, closed its facilities at 1600 W. Lee St., Louisville, Ky., and laid off about 150 workers there. Richard Delcourt, operations director for Corhart, said that the closure was a result of "significant losses" incurred during the past five years due to a lack of demand for the company's products, which were used primarily in glass and steel furnaces. No jobs were expected to be added overseas to replace the Louisville workers, but some of the production work was moved to plants in Europe and Asia, where the company had unused capacity.

According to a new study from The Freedonia Group, Inc., the significant rationalization and consolidation seen in the U.S. refractories industry over the last decade has largely exhausted itself, and consumers are unlikely to become significantly more efficient users of refractories for the foreseeable future.1 Despite what many industries would view as modest prospects, the outlook for the surviving refractory producers is much brighter than the industry has experienced in recent memory.

The Freedonia Group study forecasts that U.S. refractory demand will increase 1% annually to $2.3 billion in 2009, continuing a strong turnaround that began in late 2003 (see Table 1). Gains will be supported by both the improved economic fundamentals going forward and, particularly, the newfound stability in iron and steel following that industry's collapse starting in late 1997. Among refractory forms, demand for preformed shapes and certain monolithics will see the strongest gains going forward, while from a materials perspective, both clay and non-clay materials will perform near the industry average. However, among both clay and non-clay refractories, the switch to better performing products will continue, with the best opportunities expected for zircon and zirconia and silicon carbide refractories among non-clay refractories and high alumina clays in that segment. Despite the positive outlook, most refractory materials will not recover to 1999 levels until well after 2009.

Among the various refractories markets, the best growth opportunities in percentage terms will continue to be found in less traditional end uses, such as waste-to-energy generation and restaurants with in-house bakeries and stone ovens. However, while providing new opportunities, the small size of these markets means that their impact on aggregate refractory demand will be minimal. Much more critical to the overall health of the refractories industry will be the turnaround in U.S. steel production, the Freedonia Group study states, because the iron and steel market represents nearly half of refractory demand and will continue to do so for the foreseeable future.

However, Jon K. Tabor, chairman of the board and chief executive officer of Allied Mineral Products, Inc., cautions that true success will only be achieved for those companies that look beyond a single regional market and position themselves to compete on a global scale.

"The refractories industry is a non-growth industry in the U.S., so we must look internationally," he says. "The key to remaining competitive in a global economy is to go global. Build manufacturing plants in the regions you want to do business in; hire nationals to sell in the countries you intend to sell in, and hire nationals to run your foreign facilities. There just isn't any way you can compete in a major way on a global basis without being there."

Editor's note: The foregoing information (except where noted) was compiled from publicly available information in annual reports and news releases, as well as personal interviews.

Reference

1. Refractories (published 08/2005, $4200), The Freedonia Group, Inc., 767 Beta Dr., Cleveland, OH 44143-2326; (440) 684-9600; fax (440) 646-0484; e-mail pr@freedoniagroup.com; www.freedoniagroup.com.