Indian refractories: Bearish or better in 2016?

Falling steel prices led by the slowdown in China's economy has driven down Indian steel market growth to a rate of 3% per annum and slashed into India's refractories sector, prompting calls for protectionist policies to preserve the country's minerals and metals industries.

India's refractory minerals industry has been buffeted over the last year by the sharp fall in the price of steel, which has been compounded by accelerated dumping of Chinese steel products in the Indian market. Sector forecasters have responded by halving growth projections for India's domestic steel industry, from 6% to 3% in 2016.

High taxes and local interest rates are also creating an uneven playing field for Indian steel producers, industry participants complained at the International Refractories Congress ( IREFCON) 2016 in Hyderabad, India, last week.

This situation is forcing down the level of steel capacity utilisation in India, leaving a gap for imported material. Last year, imports accounted for 15% of the total steel consumed in India, with the majority coming from China at 28%, followed by Korea, at 26%, Japan, at 22% and Russia, at 4%.

Raw materials

India currently imports more than 50% of its refractory raw material needs, including graphite, fused and calcined alumina, magnesite and high grade clays.

According to some Indian refractories businesses, the quality of domestically produced raw materials do not meet the standards required by the steel industry, while Chinese material is comparatively better for use in some applications.

Sources at IREFCON told IM that magnesia products are mainly imported from China, because India does not have magnesite of high enough purity to make refractory bricks – products which only a handful of Indian companies make.

Similarly, the availability of high quality refractory clays is limited, while kyanite, sillimanite and andalusite remain unobtainable from Indian suppliers. 

Further, a lack of beneficiation and processing capacity for the raw materials that are available, such as bauxite, has compelled consumers to import their requirements of this refractory mineral.

Refractories follow steel trend

India's steel industry consumes 75% of the country's refractories output. There are more than 100 refractories producers in India, out of which only around 14 are major manufacturers and a further 33 are medium-sized, while the rest produce relatively small volumes of materials.

Steel plants in India consume 8-10kg of refractory per tonne of steel on average, although the figure can be as high as 15kg per tonne, depending on the quality or age of the steel plant.

The slump in the global steel market and a surge in imported finished steel products has led to an oversupply of refractories and refractory minerals in India. Domestic producers are also having to contend with competition from low cost raw materials, particularly from China.

According to delegates at IREFCON, Indian refractories output saw a drop in 2013 in terms of tonnage, which was followed by market stagnation in 2014 and slow growth in 2015, roughly matching the pace of the steel market.  

Nevertheless, revenues in India's refractories sector have increased steadily over the last six years, posting a 7% year-on-year increase in 2015 compared to 2014 and a 98.7% increase last year over levels recorded in 2009. This has been attributed to the expansion if India's domestic steel production, which has continued to grow, albeit at a decelerating rate, despite the wider global market decline.

If the trend towards increased imports of steel and refractory products and raw materials continues, however, the growth of India's refractories market could be sent into reverse within a short time.

At present, the growth potential for India's refractories industry is positive, but this outlook relies on manufacturers adopting more efficient technologies and costs coming down, particularly as specific consumption of refractories per unit of steel produced continues to decline.