Following the Paris climate change agreement and a global effort to reduce carbon dioxide emissions, magnesium and magnesium alloy production, which historically has been a heavy contributor to pollution, is experiencing a fundamental shift as consumers increasingly demand an environmentally sound product. For the last 20 years, Chinese producers have swamped global markets with low-cost, Pidgeon process magnesium driving the price down and resulting in China dominating the market with an 85% stranglehold. However, the emissions generated from Chinese production at the moment are very high; on average 20 tonnes of CO2 for every tonne of magnesium produced.
With Europe as a key demand market for magnesium – the largest consumer of magnesium alloys outside China – championing the low emissions agenda, any magnesium or magnesium alloy producer who can reduce emissions associated with production will have a significant competitive advantage in the market.
Australian company Magontec is pioneering the production and development of low carbon magnesium alloy applications. Founded in 1953 under the name Magnesiumgesellschaft, it has become a world-leader in magnesium processing technologies. Magontec’s current operations include magnesium alloy recycling plants in Romania, Germany and China, a primary magnesium alloy manufacturing business in China and in 2013 it signed a deal with Chinese firm Qinghai Salt Lake Magnesium Company (QSLM) to build a factory in its new plant to manufacture alloys from liquid pure magnesium production on that site.
QSLM’s new project will be the largest electrolytic magnesium plant in the world and will operate using 85% renewable energy as a power source. The plant is low in CO2 emissions and is a continuous process production unit on the Tibetan Plateau at Golmud, Qinghai.
Once fully operational the Qinghai project will propel Magontec to become the world’s largest supplier of electrolytic magnesium alloy.
Before entering the agreement with QSLM, which included the Chinese firm taking a 30% stake in Magontec, executive chairman Nic Andrews says he wanted to prove Magontec could be a profitable business with the assets it already had.
Speaking about the strategy after changing the name to Magontec in 2010 he says, “The first thing we did was to make all of our businesses more competitive and we have done that very successfully in the last few years.
“Before we get to Qinghai I was keen to prove that firstly we were good managers and secondly that we were able to make money out of the business we had and in 2016 we are showing that very much to be the case.”
Magontec’s underlying earnings for HY2016 reached over AUS$890,000 which Andrews says is a long way from where the company was in 2014 when it was losing money at a net profit level.
The positive results have come from a cost reduction programme which has seen business-wide renovation. Firstly, by building a new recycling plant in Romania to complement the existing German facility, Magontec was able to access significantly lower recycling costs.
“We have driven down our production costs very successfully in our European recycling businesses and restored profitability. We have introduced some very innovative changes to the processes we use – through that we have been able to increase our volumes, decrease our throughput times and reduce some of our cost inputs such as labour and energy.
“Moving to Romania was an excellent thing for us to do, we enjoy a more competitive environment and we have some very good relationships there. Romania has taken us to another level in Europe.”
The magnesium market
Magnesium has four principal applications which contribute to total product demand.
China is the dominant force in terms of production with 85% of global output, the remaining 15% is made up by the US, Russia and Brazil although all operate protected markets while Israel is able sell directly into the US on a trade agreement.
The overall magnesium market is growing at 4-5% a year and the die cast market, the critical market for Magontec, is growing at 8-10% a year. Andrews says that reflects the underlying market for magnesium alloys – the automotive industry – showing strong growth, particularly in the US, Western Europe, China and Japan where there is demand for high-end cars and significant application innovation.
“Our niche in magnesium is growing very nicely and we have plenty of technological opportunities to grow faster. Particularly in the telecommunications market where we see some significant, high volume opportunities to replace aluminium products which currently dominate the market,” explains Andrews.
In regards to demand for magnesium, one of its principal uses in the automotive industry is in the steering wheel – nearly every steering wheel in the world is made of magnesium. However, according to Andrews car manufacturers are beginning to see the advantages of using magnesium alloys in various parts of new vehicles.
“What’s driving that is the weight, if you can replace an aluminium product with magnesium you reduce weight by 30-40% and so carbon emission reductions and fuel consumption reductions are quite significant.”
In the drive to lower CO2 emissions and reduce the weight of cars, which will be equally if not more important with the growth of electric vehicles, lightweight is critical.
“That is what is driving magnesium into the automotive industry and lightweight is also what is going to drive it into the telecommunications industry where mobile phone antennae and other transmission applications are often found in weight-critical locations.”
The EU, the regulatory body for Europe, has set a target of 90 grams per kilometre for automotive CO2 emissions – the levy will come into force post-2020. Andrews says that potential financial penalties are a key factor in driving car manufacturers to explore magnesium in other parts of vehicles, in particular powertrain applications such as gearbox cases and parts of the engine block.
“In addition to lower CO2 emissions from lightweight magnesium applications, our production process at Qinghai will also offer a lower ‘embedded’ CO2 material. Our emissions from the Qinghai production process will be around 6-7 tonnes of CO2 per tonne of magnesium produced compared to around 20 tonnes from the average Chinese producer today. When we go to BMW or Daimler in Europe or to Japan or China and say we are pumping half or a quarter as much CO2 in the air as our competitors that is a big issue for them and if our price is the same our product will move much more quickly.”
Magontec’s new factory in the QSLM plant will play a key role in producing magnesium alloy product to supply the European automotive industry.
Andrews says that while the factory will be a big project to swallow it will eventually double or nearly triple Magontec’s output of primary magnesium alloy. In addition, in a supply-side unstable industry where contracts are normally only six months, Magontec will be able to sign long-term contracts with consumers.
“We will improve the supply chain and we will be able to supply 1-3 year contracts because of the consistency of the supply that we are guaranteed under agreements with QSLM and by the continuous nature of the plant that will supply us.”
Once the Qinghai plant is fully ramped up Magontec is expecting its primary magnesium alloy sales to leap from 25,000 metric tonnes (mt) to 59,000mt, in a firm position as the world’s largest supplier of electrolytic magnesium alloy.
Further to its low emission advantage, Magontec will also be more competitive in the market thanks to the original offtake pricing structure that it signed with QSLM.
“The deal should allow us to get solidly back into the European market that we have been slowly eroded out of in recent years and back into the Canadian and Mexican markets too. We will have a much more competitive product,” predicts Andrews.
The Qinghai factory likely will not be at capacity production until sometime in 2018 according to Andrews, so while it will not be an overnight transformation for the company, the deal will put Magontec in a position of strength in the European, Asian and North American markets for years to come.
“We have a product with excellent characteristics in a plant which has a very good process and is a continuous production plant,” and Andrews adds that the fragile nature of magnesium supply will further bolster Magontec’s demand base due to the long-term contracts it will be able to sign at competitive prices. Price is key in a very competitive environment and we will be a strong player in that environment.”