Mike O’Driscoll, Editor, Industrial Minerals · The Turning of the Dragon China in change:...

The Turning of the DragonThe Turning of the DragonChina in change: domestic demand priorityChina in change: domestic demand priority

Mike OMike O’’Driscoll, Driscoll, Editor, Industrial MineralsEditor, Industrial MineralsFuture Trends in Industrial Minerals Future Trends in Industrial Minerals 2007 SME Annual Meeting2007 SME Annual Meeting2525--28 February 2007, Denver28 February 2007, Denver

Industrial MineralsIndustrial MineralsMetals, Minerals, & Mining Division, Metal Bulletin, UKMetals, Minerals, & Mining Division, Metal Bulletin, UK

The Turning of the DragonThe Turning of the DragonMike OMike O’’Driscoll, Industrial MineralsDriscoll, Industrial Minerals2007 SME Annual Meeting, 252007 SME Annual Meeting, 25--28 February 2007, Denver28 February 2007, Denver

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OutlineOutline


1. Evolution of mineral trade1. Evolution of mineral trade

2. Government influence2. Government influence3. Industry structure3. Industry structure

4. Logistics4. Logistics

5. Energy5. Energy6. Consuming markets6. Consuming markets

7. Corporate activity7. Corporate activity8. Conclusions & Outlook8. Conclusions & Outlook

LiaoningmagnesiteTianjin

port

Shanxibauxite

Bayuquanport

Zhanjiangport

Fangchengport

Inner Mongoliakaolin, mullite

Shanghaiport

1. Evolution of mineral trade1. Evolution of mineral tradeChina as dominant mineral supplierChina as dominant mineral supplier


Chinese industrial mineral production 2005 (m. tonnes)Chinese industrial mineral production 2005 (m. tonnes)Asbestos 0.40Attapulgite & sepiolite 0.17Barite 4.40Bentonite 2.30Boron minerals (B2O3 12%) 1.7Diatomite 0.10Feldspar 2.3Fluorspar 2.70Graphite amorphous 1.05Graphite flake 0.40Ground calcium carbonate 4.60Gypsum 32.00

Kaolin 3.70Magnesite & magnesia 15.44Mica 0.15Phosphate rock (P2O5 30%) 30.45Potash (K2O) 0.45Pyrites (S 35%) 11.46Strontium minerals (SrSO480%)

0.7

Talc powder 2.00Talc lumps 0.60Vermiculite 0.1Wollastonite 0.35



Leading supplier:Leading supplier:

•• BariteBarite•• BauxiteBauxite•• Fused aluminaFused alumina•• FluorsparFluorspar•• GraphiteGraphite•• MagnesiteMagnesite•• Refractory claysRefractory clays•• Silicon carbideSilicon carbide•• TalcTalc•• Wollastonite

US imports 2006US imports 2006Net importNet import ChinaChinareliancereliance shareshare83%83% 90%90%n.a.n.a. 70% est.70% est.n.a.n.a. 77% (crude) 38% (grain)77% (crude) 38% (grain)100%100% 63%63%100%100% 42%42%53%53% 73%73%n.a.n.a. --82%82% 74% (crude) 35% (grain)74% (crude) 35% (grain)11%11% 45%45%n.a.n.a. 60% (2003)60% (2003)Wollastonite



The The ““China factorChina factor””



Source: Chinability

2007 growth forecast 10%2007 growth forecast 10%



1. Opened up in 19781. Opened up in 19782. 1980s emergence as major exporter2. 1980s emergence as major exporter

-- low costlow cost-- inconsistent qualityinconsistent quality

3. Dominated by large SOEs3. Dominated by large SOEs

4. 1990s China/East Asian growth4. 1990s China/East Asian growth-- manufacturing shift Eastmanufacturing shift East-- overseas joverseas j--v tricklev trickle-- emergence of port processors & emergence of port processors & ““brokersbrokers””-- value added exports value added exports –– semisemi--processedprocessed



Bosai Minerals,Tianjin



5. 1994: export licences introduced5. 1994: export licences introduced6. 2000 Chinese economy booms, 8% growth6. 2000 Chinese economy booms, 8% growth7. Export quality improves7. Export quality improves

-- squeezes Western producerssqueezes Western producers-- some exit market (magnesia, fused aluminasome exit market (magnesia, fused alumina

8. 20038. 2003--04 economy soars, 10% growth04 economy soars, 10% growth-- domestic industries expanddomestic industries expand-- domestic market priority for mineralsdomestic market priority for minerals-- rising costs & shortages in power supplyrising costs & shortages in power supply-- rising costs & shortages in internal freightrising costs & shortages in internal freight-- rising costs & shortages in ocean freightrising costs & shortages in ocean freight

9. 20059. 2005--07: export reduction & tax, resource protection 07: export reduction & tax, resource protection


2. Government influence2. Government influenceKey to Chinese minerals outlookKey to Chinese minerals outlook

1.1. Export license sytemExport license sytem-- 1994, CCCMC1994, CCCMC-- more control, avoid dumping, add valuemore control, avoid dumping, add value-- magnesite, fluorspar, talc, SiC, bauxite, brucitemagnesite, fluorspar, talc, SiC, bauxite, brucite-- flat fee, bidding and quota systemsflat fee, bidding and quota systems-- illegal license trading, collusion, smugglingillegal license trading, collusion, smuggling-- annual modifications, confusionannual modifications, confusion-- price increases, export volume reductionsprice increases, export volume reductions

2. Resource tax2. Resource tax-- fewfew--tens US$; a tens US$; a ““provincialprovincial”” taxtax

3. Antipollution legislation3. Antipollution legislation-- closure of old bauxite kilns; supply squeezeclosure of old bauxite kilns; supply squeeze


2. Government influence2. Government influenceMagnesite exportsMagnesite exports


2. Government influence2. Government influenceBauxite kilnsBauxite kilns



““CoolingCooling”” the economythe economy

4. Tax rebate abolition 2003 & 20064. Tax rebate abolition 2003 & 2006-- bauxite, SiC, BFA, RE, graphite, magnesite, bauxite, SiC, BFA, RE, graphite, magnesite, fluorspar, talc, barite; from 13fluorspar, talc, barite; from 13--17% to 0%17% to 0%

-- resulted in export price increasesresulted in export price increases5. New export taxes Nov. 2006/Jan. 20075. New export taxes Nov. 2006/Jan. 2007

-- 10% tax on RE, andalusite, kyanite, sillimanite, 10% tax on RE, andalusite, kyanite, sillimanite, mullite, apatite, fluorspar, MIO, Timullite, apatite, fluorspar, MIO, Ti--minerals, minerals, zircon; others to followzircon; others to follow

6. Resource protection6. Resource protection-- ““SDSD””; conserve raw materials for domestic market; conserve raw materials for domestic market



Chinese trader comments:Chinese trader comments:

““I feel thatI feel that once the Chinese government is once the Chinese government is introducing a new tax to curb the export of introducing a new tax to curb the export of minerals, obviously they do not worry about minerals, obviously they do not worry about the competitiveness of Chinese minerals in the the competitiveness of Chinese minerals in the international market any more.international market any more.””



Chinese trader comments:Chinese trader comments:

““The overseas buyer will either be The overseas buyer will either be forced to pay a significantly higher forced to pay a significantly higher price for Chinese mineralsprice for Chinese minerals or buy or buy from an alternative source.from an alternative source.””


3. Industry structure3. Industry structureA need to upgrade and make more efficientA need to upgrade and make more efficient

•• 14,203 non14,203 non--metallic mineral minesmetallic mineral mines•• 289m. tonnes289m. tonnes

•• Privatisation trend away from statePrivatisation trend away from state--, province, province--, , towntown--, village, village--owned enterprisesowned enterprises

•• ““Policy based problemsPolicy based problems””::-- declining resourcesdeclining resources-- small scale producers small scale producers –– eg. talc, graphiteeg. talc, graphite-- lack of high tech processing lack of high tech processing –– eg. GCCeg. GCC-- lack of state level organisationlack of state level organisation



•• CNMIA response:CNMIA response:-- raise production standards, add valueraise production standards, add value-- develop high tech processingdevelop high tech processing-- enhance merger of smaller producersenhance merger of smaller producers-- attract more foreign investmentattract more foreign investment


3. Industry structure3. Industry structureMiningMining


3. Industry structure3. Industry structureOpening up new regions for development Opening up new regions for development -- XinjiangXinjiang

•• Govt. Govt. encouragement to encouragement to develop western develop western ChinaChina-- tax & licencing tax & licencing incentivesincentives

Xinjiang Bazhou Yilong Andalusite Mineral Co., Ku’erle, Yanji, Xinjiang

Xinjiang Yuli Xinlong Vermiculite Co. Ltd, Xinjiang


3. Industry structure3. Industry structureOpening up new regions for development Opening up new regions for development –– Inner MongoliaInner Mongolia


3. Industry structure3. Industry structureOpening up new regions for development Opening up new regions for development –– Inner MongoliaInner Mongolia

Meng Sheng Minerals, Jungar, Inner Mongolia


•• Integration and diversificationIntegration and diversification-- minerals + intermediate +/or end productsminerals + intermediate +/or end products


China Mineral Processing, Tianjin


4. Logistics4. LogisticsA constant challenge in terms of cost & availabilityA constant challenge in terms of cost & availability

•• Chief issues:Chief issues:-- rising price of fuelrising price of fuel-- govt. clampdown on truck overloadinggovt. clampdown on truck overloading-- railcar prority to coal, coke, grainrailcar prority to coal, coke, grain-- increased cost of ocean freightincreased cost of ocean freight-- shortage of vesselsshortage of vessels-- port congestion, stocks awaiting exportport congestion, stocks awaiting export

•• Response:Response:-- more effort in determining logistical solutionsmore effort in determining logistical solutions-- invest in strategic stockpilinginvest in strategic stockpiling-- secure alternative supply sourcessecure alternative supply sources


4. Logistics4. LogisticsA constant challenge in terms of cost & availabilityA constant challenge in terms of cost & availability


4. Logistics4. LogisticsSolutionsSolutions

Courtesy Yasheya Ltd


5. Energy5. EnergyThe Achilles heel of energy intensive mineral operationsThe Achilles heel of energy intensive mineral operations


5. Energy5. EnergyThe Achilles heel of energy intensive mineral operationsThe Achilles heel of energy intensive mineral operations

•• Chief issues:Chief issues:-- power shortages since 2003power shortages since 2003-- worst case, 80% provinces had black outsworst case, 80% provinces had black outs-- 20042004--07, power costs rising 507, power costs rising 5--10% p.a.10% p.a.-- fused mineral producers hit hardestfused mineral producers hit hardest


5. Energy5. EnergyThe Achilles heel of energy intensive mineral operationsThe Achilles heel of energy intensive mineral operationseg. Magnesia shaft kilnseg. Magnesia shaft kilns


5. Energy5. EnergyThe Achilles heel of energy intensive mineral operationsThe Achilles heel of energy intensive mineral operationseg. fused magnesia electric arc furnaceseg. fused magnesia electric arc furnaces


6. Consuming markets6. Consuming marketsEconomic growth feeds domestic industry boomEconomic growth feeds domestic industry boom

•• ConstructionConstruction-- prime driving force for minerals markets:prime driving force for minerals markets:

cement, ceramics, glass, paint, plastics, metals, cement, ceramics, glass, paint, plastics, metals, steel (fluxes, refractories, castings)steel (fluxes, refractories, castings)

-- building expenditure 9.7% p.a. growth to 2010building expenditure 9.7% p.a. growth to 2010-- expressways, rail links, port infrastructureexpressways, rail links, port infrastructure-- increased private housingincreased private housing-- Beijing 2008 OlympicsBeijing 2008 Olympics



•• EnvironmentEnvironment-- Govt. policy in infancy, but steadily growingGovt. policy in infancy, but steadily growingnegative:negative:-- emissions controls, eg. bauxite kiln closuresemissions controls, eg. bauxite kiln closures

positive:positive:-- waste/water treatment, 14.1% p.a. 2010, $4,200m. waste/water treatment, 14.1% p.a. 2010, $4,200m. lime, Mg(OH)lime, Mg(OH)22, bentonite, silica sand, garnet, magnetite, bentonite, silica sand, garnet, magnetite-- SOSO22 discharge 27% rise 2001discharge 27% rise 2001--05, at 25m. tonnes05, at 25m. tonnes-- FGD installation programmeFGD installation programmelimestone, lime, Mg(OH)limestone, lime, Mg(OH)22



•• FoundryFoundry-- 30% or world metal castings by 200830% or world metal castings by 2008-- automotive castings expansion (15%)automotive castings expansion (15%)chromite,chromite, olivine, olivine, zircon,zircon, silica sand, mullite, andalusite, fused silica, silica sand, mullite, andalusite, fused silica, zirconzircon



•• PaintPaint-- multinational paintmakers in China: Akzo Nobel, multinational paintmakers in China: Akzo Nobel, PPG, ValsparPPG, Valspar

-- key drivers: architectural coatings (20% rise in key drivers: architectural coatings (20% rise in 2005) & automotive coatings2005) & automotive coatings

barite, calcium carbonate, iron oxide, kaolin, mica, talc, TiObarite, calcium carbonate, iron oxide, kaolin, mica, talc, TiO22, , wollastonitewollastonite



•• PaperPaperproduction from production from 30.9m. in 2000 to 30.9m. in 2000 to 55m. tonnes 200555m. tonnes 2005

calcium carbonate calcium carbonate (GCC, PCC), kaolin, (GCC, PCC), kaolin, talc, TiOtalc, TiO22

1995 2000 2005 2010 2015

24000

30900

45000

66000

80000

20000

30000

40000

50000

60000

70000

80000

Ktp

a

CHINA PAPER PRODUCTION AND PROJECTED GROWTH UNTIL 2015

Source: Song Bao Xiang, 2003


6. Consuming markets6. Consuming marketsPaper marketPaper market

-- major players in China: UPM, Stora Enso, IPmajor players in China: UPM, Stora Enso, IP

-- mineral producers mineral producers ““followedfollowed”” papermakers, papermakers, eg. Imerys, Omyaeg. Imerys, Omya

-- potential shortage of high brightness marble, potential shortage of high brightness marble, paper grade kaolin and talcpaper grade kaolin and talc

Courtesy Ian Wilson



TIAN TINGNINGBO ZHONG HAI

STORAJIA XING BU YUN

SITE FOR OJI PAPER

APP

YFYu

UPM

FUYANGMANY MILLS

JIN HUA YONG SHUN

MU NIU

Gaoling

PAPER MILLS

AREA OF MARBLE DEPOSITS

Major paperMajor papermills in mills in Zheijiang andZheijiang andJiangsu Jiangsu provincesprovinces

Courtesy Ian Wilson



Imerys GCC supply at Changshu and Suzhou



•• RefractoriesRefractories-- driven by steel, nonferrous metals, cement, glass, driven by steel, nonferrous metals, cement, glass, lime, ceramicslime, ceramics

bauxite, magnesite, refractory clays, mullite, alumina, fused albauxite, magnesite, refractory clays, mullite, alumina, fused alumina, umina, SiC, graphite, andalusiteSiC, graphite, andalusite

-- 2006 crude steel production 418.8m. tonnes;2006 crude steel production 418.8m. tonnes;-- a 313.8% increase from 1996a 313.8% increase from 1996-- now 1/3 world steel productionnow 1/3 world steel production-- 23m. tpa refractories 23m. tpa refractories -- 2020--40 kg/t steel specific refractory consumption40 kg/t steel specific refractory consumption


6. Consuming markets6. Consuming marketsRefractories marketRefractories market

-- major players established in China: eg. RHI, major players established in China: eg. RHI, Vesuvius, Orissa, Morgan Crucible, Allied Mineral Vesuvius, Orissa, Morgan Crucible, Allied Mineral Products, Clayburn, Ropcycze, KrosakiProducts, Clayburn, Ropcycze, Krosaki

-- close to market, close to raw materials, eg. jclose to market, close to raw materials, eg. j--v v Liaoning RHI Jinding Magnesia Co. LtdLiaoning RHI Jinding Magnesia Co. Ltd

-- plant capacities expanding, eg. RHI, Kerneos, plant capacities expanding, eg. RHI, Kerneos, AlmatisAlmatis

-- recent upgrade in Chinese Co. refractory plantsrecent upgrade in Chinese Co. refractory plants-- products exported as products exported as ““second wavesecond wave””



Refractories j-v, X-R Ropczyce, Haicheng, Liaoning



Houying Refractories Group expansion, Haicheng, Liaoning


7. Corporate activity7. Corporate activityIncreasing at home and abroadIncreasing at home and abroad

•• In ChinaIn China-- increasing foreign investment in mineralsincreasing foreign investment in minerals-- mineral producersmineral producers

eg. eg. Almatis (calcined alumina)Almatis (calcined alumina)American Colloid, Sud Chemie (bentonite)American Colloid, Sud Chemie (bentonite)Astron (fused zirconia, TiOAstron (fused zirconia, TiO22))Imerys (GCC)Imerys (GCC)LWB (refractory dolomite)LWB (refractory dolomite)Omya (GCC)Omya (GCC)Quarzwerke (wollastonite)Quarzwerke (wollastonite)S and B (wollastonite, perlite)S and B (wollastonite, perlite)Sibelco (silica)Sibelco (silica)

-- mineral consumersmineral consumers-- mineral processing suppliers, eg. Hosokawamineral processing suppliers, eg. Hosokawa


7. Corporate activity7. Corporate activityIncreasing at home and abroadIncreasing at home and abroad

•• Outside ChinaOutside China-- govt. support for Chinese Co.s to invest overseasgovt. support for Chinese Co.s to invest overseas-- Noranda bid, African interestsNoranda bid, African interests-- acquisition of Omai Bauxite Mining Inc., Guyana acquisition of Omai Bauxite Mining Inc., Guyana by Bosai Minerals Group, Chongqing, for $46m., by Bosai Minerals Group, Chongqing, for $46m., Jan. 2007Jan. 2007

-- OBMI worldOBMI world’’s only source of refractory grade s only source of refractory grade bauxite outside Chinabauxite outside China……now under Chinese now under Chinese ownershipownership

-- delicate situation for Resco Products Inc.delicate situation for Resco Products Inc.’’s s lawsuit vs. Chinese bauxite exporterslawsuit vs. Chinese bauxite exporters


7. Corporate activity7. Corporate activityBosai Minerals in GuyanaBosai Minerals in Guyana


8. Conclusions & Outlook8. Conclusions & OutlookOpportunities to be takenOpportunities to be taken

•• Bottom line: China is actively discouraging exportsBottom line: China is actively discouraging exports•• Aim to conserve domestic raw materials for domestic Aim to conserve domestic raw materials for domestic market demand priority, reduce energy consumption, market demand priority, reduce energy consumption, and reduce trade imbalanceand reduce trade imbalance

•• Mineral exporters to increasingly supply domestic marketMineral exporters to increasingly supply domestic market•• Good news for overseas mineral investors in China, Good news for overseas mineral investors in China, more will join themmore will join them

•• Good news for overseas mineral producers to fill gap Good news for overseas mineral producers to fill gap from reduced Chinese exports from reduced Chinese exports –– already being realisedalready being realised

•• Sourcing minerals from China: more challenging!Sourcing minerals from China: more challenging!•• Time to consider sourcing minerals to Time to consider sourcing minerals to supplysupply ChinaChina


Golden opportunitiesGolden opportunities

Year of the Golden PigYear of the Golden PigOnce every 600 years: wealth & virilityOnce every 600 years: wealth & virility

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