qmag presentation 2008

Magnesia Demand, Supply and Price Outlook

Paul RixGeneral Manager Marketing

MagMin, Amsterdam 12th May 2009

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� Global industrial production has declined rapidly.

� Significant contraction in demand for resources and minerals.

QMAG Presentation – Global Demand

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� Steel production response was significant and rapid.

� Production cuts have continued into 2009 but stabilising.


Source: Rio Tinto and WSA

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� WSA estimates global steel consumption down 14.9% in 2009.

� WSA expects “a mild recovery in 2010”.

Short range outlook for apparent steel use (2008-2009) in Mmt

WSA April 2009 2008 2009 2008 2009

World 1,197.4 1,018.6 -1.4% -14.9%

China 425.7 404.4 2.9% -5.0%

EU (27) 181.5 129.2 -8.4% -28.8%

USA 97.5 61.8 -9.8% -36.6%

Japan 76.4 60.8 -4.0% -20.4%

S Korea 58.6 49.5 6.1% -15.6%

India 52.6 53.5 6.1% 1.7%

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� IMF forecasts global growth will now be negative in 2009.

� Advanced economies will have pronounced negative growth.

� Emerging economies growth will fall but remain positive.

� Emerging economies will drive global growth positive in 2010.

� Global growth will resume to more normal levels from 2011.

April 2009 2007 2008 2009 2010 2011 2012 2013 2014

World 5.2 3.2 -1.3 1.9 4.3 4.8 4.9 4.8

Advanced economies 2.7 0.9 -3.8 0.0 2.6 3.0 3.0 2.6

Emerging economies 8.3 6.1 1.6 4.0 6.1 6.7 6.8 6.8

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� World economy expected to double by 2025.

� Emerging economies will continue to drive growth.


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� The immediate outlook is for negative global growth in 2009 and low growth in 2010.

� However, the medium to longer term economic development of emerging economies is not expected to be disrupted.

� The urbanisation and industrialisation processes in emerging markets will continue to drive rapid demand for minerals over the medium to longer term.

� Despite the current downturn, Rio Tinto expects world commodity demand to double over next 15-20 years.

� The major resource companies (BHP, Vale and Rio) are still investing on the basis of rapid growth in emerging markets.


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� The short term supply response to the downturn has been rapid and severe.

� Major reductions and closure of minerals/resources capacity.

� Some reductions and closure will be permanent.

� In addition, availability of capital is scarce and the cost of capital has increased significantly.

� As a result, many new resource projects have been cancelled or postponed.

� When economic conditions and demand recovers, the ability of supply to respond will be constrained and slow.

� New production capacity that is developed will tend to be at higher marginal cost of production.

QMAG Presentation – Global Supply

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� Reduced investment will constrain future supply of minerals.

� Reduced exploration will further constrain supply.

� Shortages will emerge once growth resumes.

QMAG Presentation – Global Supply

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QMAG Presentation – Magnesia 2008 Review

� Like other minerals, the MgO market tightened significantly throughout 2007 and most of 2008.

� Most refractory companies built up inventories of Chinese MgO ahead of the Olympics due to rising prices/limited availability.

� When the world economic slowdown hit, major de-stocking took place in steel, refractories and raw materials.

� Chinese prices fell as a result of falling freight rates, energyprices, export licence fees and lower demand.

� MgO has followed a similar price trend to other commodities.

� However, the rise and subsequent fall has not been as great for MgO as with other commodities such as coal, oil, base metals.

� Input costs and, for some producers, exchange rates have also fallen, easing the financial impact of falling prices.

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� Magnesia has been much less volatile than other commodities.

Commodity Prices (2005 = 100)

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100

150

200

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2005 2006 2007 2008 2009 Source: IMF, QMAG

Coal

Nickel

Iron Ore

Copper

Oil

Magnesia

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� Freight/energy inputs have fallen easing commodity price falls.

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� In addition to input cost reductions, commodity based exchange rates (such as A$) have also fallen further easing price falls.

Source: Rio Tinto

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� Emerging economies will continue to drive world growth over the medium to longer term.

� QMAG still expects strong long term growth in MgO demand from steel, cement, nickel, cobalt, environmental and agricultural markets.

� QMAG market study in 2007. Growth in MgO consumption:• Total MgO growth 4.2% pa (330ktpa)

• Refractory MgO growth 3.8% pa (220ktpa)

• Chemical MgO growth 5.2% pa (110ktpa)

• High value refractory MgO growth 4.3% (70ktpa)

• High value chemical MgO growth 15.3% pa (60ktpa)

� While 2009 (and possibly 2010) will be down on previous years, QMAG stands by these long term growth forecasts.

QMAG Presentation – Magnesia Demand Outlook

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� Despite the slowdown, Chinese growth will resume and increase demand for MgO.

� Chinese Govt policy will continue to constrain MgO export availability. This policy shift is fundamental and permanent.

� Commerce Minister Chen Deming said the Govt would ensure high-energy and resource-consuming exports remain curtailed.

• Elimination of export rebates

• Introduction of export taxes

• Restriction in export licences

� Policy changes and integration into world economy has increased Chinese MgO cost structure.

� Addition of new global MgO capacity will be limited – scarcity and high cost of capital, limited high quality deposits, greenfields capex cost, limited low cost energy, environmental constraints.

QMAG Presentation – Magnesia Supply Outlook

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� MgO demand will be soft in 2009 and possibly into 2010.

� Longer term, MgO consumption growth will return on the back of growth in emerging economies.

� Capital scarcity/cost, resource availability and Chinese Govt policy will constrain MgO supply longer term.

� MgO capacity closures of the 1990’s and early 2000’s are permanent.

� Tighter MgO market conditions and higher prices will return in the medium term.

� Rio Tinto: “Our expectation remains that real long run prices for almost all minerals and metals will average higher than was the case in the two decades preceding the recent boom”.

QMAG Presentation – Magnesia Price Outlook

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� Demand and supply fundamentals will ensure MgO prices will not return to the low levels of early 2000’s.

QMAG Presentation – Magnesia Price Outlook

Chinese Magnesia Prices US$ FOB Europe

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400

600

800

1000

1200

1400

00 01 02 03 04 05 06 07 08 09

US$

/mt

CDBM97

CFM97

CFM98

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� QMAG CCM expansion is well underway but commissioning has been pushed back to mid 2010.

� CCM markets have not been as impacted as refractory markets and CCM expansion markets remain intact.

� Refractory customers are now looking for new lower cost and higher value in use products.

� QMAG is extending its product range – mainly new refractory products:

• 92% CCM product

• 92% DBM product

• 95% DBM product

• 96% EFM product

• 98-98.5% DBM/EFM products from high purity Yaamba deposit

� Flexibility of a natural producer producing DBM, EFM and CCM.

QMAG Presentation – QMAG Response to Downturn

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Thank youThank youThank youThank you

qmag presentation 2008

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