Indian, US steel markets buoy refractories amid base metal project delays: RHI Magnesita

RHI Magnesita, a refractory supplier to steel and a wide range of industrial applications, including non-ferrous metals, expects investments in new base metal capacities to resume in earnest by 2028, while seeing midterm demand from the steel sector as largely underpinned by robust growth in India and a healthy US market, while European and Latin American production remains flattish.

Refractories, which are consumables for steel mills due to their short life in high-temperature smelting, are capex-driven items in the non-ferrous metals industry, where they go into new furnaces and last for years.

Every time they face something as destabilizing as a military conflict, base metal producers become very conservative with their capex programs, RHI Magnesita's chief customer officer, Gustavo Franco, told Platts, part of S&P Global Energy, in an interview.

"We've seen their projects pushed out to the next quarter, then the next half year, and to the next year," he said. The lack of new projects has persisted for two years, and as the war in the Middle East injects yet more uncertainty into the market, RHI Magnesita expects investment in base-metal smelting capacity to pick up in 2027-28.

Despite the conflict's profound impact on aluminum, RHI Magnesita remains more sensitive to disruptions in the steel industry: sales to steel companies account for 70% of its revenue, and in Gulf Cooperation Council countries in particular, it meets 60% of demand from local steel mills.

"Most GCC steel plants are struggling to import iron ore and DRI," Franco said. "We have not run a single customer out of refractories, which can ship to safe ports and use trucks to deliver to mills, but as iron ore volumes are much larger, the scheme with ports outside the Strait of Hormuz is not feasible."

As for non-ferrous metal industries, copper smelters are facing a very challenging environment: very thin margins and no investment in new capacity, he said.

"With copper, you need to go beyond headlines [warning of deficits] to understand if you are talking about the ore or the product," he said. "There is a shortage of mining, but on the smelting side, there is an overcapacity, and refractories go into furnaces, not mines."

New EAFs to offset capacity cuts

Overcapacity issues in the steel industry will take longer to resolve, but they affect refractory producers differently, Franco said.

The Chinese government and producers realize they need to take 200 million-300 million metric tons of steel capacity out of the system. They have five years to implement it, but until plants begin to shut down, they will continue exporting, prompting further trade measures, a scenario that will run its course only by 2030, according to Franco.

"Although steel production will decline in China, with new electric arc furnaces coming online to replace old integrated plants, we should maintain our current volumes or even grow slightly," he said.

The shift away from the blast furnace-basic oxygen furnace steelmaking route is ongoing in a few places. "It is not as fast as you read in the news, but it is happening," Franco said. "When I moved to the US in 2012, they produced 60% of their steel in EAFs. It's 80% today."

The trend is positive for RHI Magnesita: for the same amount of steel, the EAF uses more refractory mixes than BF-BOF steelworks, and those mixes are where the company has most of its backward integration into raw materials.

Growing spots are few

EAF projects in the EU also lighten prospects in a place that otherwise remains "a market with weak demand"; RHI Magnesita does not project Europe to have a booming economy or significant construction activity.

In the first six months of the year, EU steel output slipped 0.3% to 65.4 million mt, according to the World Steel Association.

"EU production might bounce back in 2027, but from a low base and thanks to the [doubled] tariffs," Franco said, adding that it has taken a year for escalated Section 232 tariffs to reinvigorate the US steel market.

Where steel demand is genuinely growing and will continue to expand, supported by favorable demographics and rising GDP, is India, but RHI Magnesita's expectations for Latin America, where most countries have high debt and low investment, are muted.

To make the most of the global market where bright spots are scarce, the company has increased production in refractory end-user regions, with its local-for-local output now at 70% of the total.

New business stream

RHI Magnesita's investments in upstream operations, comprising mines in Austria, Turkey, the US, Brazil and China, are driven by decarbonization must-dos. The company has spent €15 million on a joint venture with MCi Carbon, which is testing proprietary technology at a pilot facility in Australia to capture CO₂ from magnesite processing and convert it into a commercial by-product for road construction.

"We mine rock, process it, then put into a rotary kiln. That's when CO₂ emissions occur. For every two tons of magnesite, we get one ton of magnesium oxide and one ton of CO₂," Franco said, admitting that calcination is carbon-intensive, but could be decarbonized with the right technology.

"If we receive a firm confirmation that the technology works, it could become a new way of operating mines for us, even a new business stream," he said, adding that a decision regarding its initial rollout in Austria is expected in 2027.