The Dependence of the EU Refractories Industry on Raw Materials Imports

Robin Schmidt-Whitley, European Refractories Producers Federation PRE

SW Trade & Raw Materials 25.09.2008

The EU Refractories Industry Profile

The EU refractories industry is a comparatively small industry within the Ceramics sector: > Workforce 26.000 > Sales 4 billion (19 % of world market) > Production 6 million tons of bricks and monolithics The industry is highly exposed to international competition > Exports 32 % (worldwide) > Imports 10 % (mainly from China) Refractories are of strategic importance to the EU materials industries

1 9

Dependence on Raw Materials Imports

The Strategic Importance of Refractories

A domestic refractories industry is of strategic importance for Europe Refractories are irreplacable as linings of furnaces wherever industrial processes surpass temperatures of approx. 600C Without refractories, there would be no materials industry No steel, no glass, no cement, no aluminium, no copper, no building bricks, no porcelain, no cars, no electricity... Example: Copper Converter *

* Drawing by courtesy of RHI AG

2 9 Dependence on Raw Materials Imports

Some Facts on Refractory Raw Materials

Raw materials are a major concern for the refractories industry. Raw materials account for some 40% of the cost of refractories finished products (bricks and monolithics) Raw materials have a major influence on product quality The refractories industry relies heavily on imports of raw materials China has become the main supplier of many high volume raw materials

3 9

Dependence on Raw Materials Imports

Sources of Some Important Refractory Raw Materials

Natural Magnesite Refractory Grade Bauxite Flake Graphite

4 9

Dependence on Raw Materials Imports

The Domination of China

There are only a few refractory raw materials available in Europe, i.e. fireclay, silica, andalusite, dolomite, and some types of magnesite. But for many qualities China is the main source and supplies the World: > dead burned magnesia > fused magnesia > refractory bauxite > silicon carbide > brown fused alumina > graphite 45% 90% 95% * 40% 50% 80%

* including Guyana controlled by China

5 9 Dependence on Raw Materials Imports

Price Dependence on China

The price evolution of refractory raw materials* seems to be greatly influenced by the degree of dependence on Chinese sources:
300

Price Index (2005 = 100)

200

100

0 0 20 40 % China
6 9 Dependence on Raw Materials Imports

60

80

100
* Source: VDFFI

China's Raw Materials Policy is Unfair

Exports of raw materials such as dead burned magnesia, refractory bauxite, and graphite are restricted and heavily taxed Examples: > the total quantity of magnesia available for export is reduced annually > demand now exceeds export supply > export licenses are auctioned to selected domestic bidders only > due to shortage, the export license cost by far exceeds the issue price > output VAT of 17% is raised (from September '06) > export tax on top: magnesia 10% - bauxite 15% - graphite 20% > minimum export tax for magnesia (from March '08) None of these costs are borne by Chinese domestic producers, and exports of finished products made from these raw materials are not taxed

7 9

Dependence on Raw Materials Imports

Competitive Disadvantage of EU Industry

400

Freight
300

Duties Material Cost

200

100

0 2002 2005 H1/2007 Jul 07 Jan 08 Aug 08

Since 2002, magnesia prices have increased by 80% in China and by more than 200% for international buyers. Due to licensing and taxation of exported raw materials, Chinese domestic producers of magnesia bricks have a cost advantage in European and export markets of approx. 30%
8 9 Dependence on Raw Materials Imports

Conclusions and Priorities

The EU refractories industry is heavily dependent on raw materials imports, especially from China Exports of raw materials from China are restricted and heavily taxed Domestic Chinese producers enjoy an important competitive advantage So what are the priorities? Short Term: Ensure access to raw materials at identical conditions to competition If this is not possible, countermeasures should be taken Long Term: Develop alternative raw materials sources Increase worldwide exploration of raw materials
9 9 Dependence on Raw Materials Imports