Dr. Bernd Scheubel, Managing Director of Refratechnik Holding GmbH
Refwin: Please briefly introduce Refratechnik’s current developments to us!
Dr. Bernd Scheubel: As you may know, Refratechnik is the only globally operating private refractory company. This means that we do not have to care about share values and nor do we have to publish results and business ideas in order to satisfy analysts and banks. Since Refratechnik was founded as the result of cooperation with a cement producer almost 70 years ago our main business area has always been the cement industry. Refratechnik is the world market leader in this industry, which entails, however, a certain dependency on the cement industry. As a logical consequence Refratechnik is strengthening its position in other refractory consuming industries, especially in the steel- and nonferrous industries. We will also extend our activities on the raw material sector and thus expand our business base.
Refwin: What shares of Refratechnik products are sold to cement industry and steel industry? What are the major challenges in these fields?
Dr. Bernd Scheubel: If we take a look at the world refractory consumption, we see that about 70-75% of refractory products are used in steel, nonferrous and related industries and only about 10-13% in the cement and lime industry. Thus almost all refractory suppliers sell about 60-80% of their production to the steel and related industries and only 10-20% to the cement industry. Refratechnik, however, sells about 60-70% to the cement industry and only a minor part to the steel industry.
Both industries worldwide suffer from big overcapacities which originate from the boom years between 2000 and 2009. Refractory industry, of course, was directly affected. Especially in China, the world’s biggest producer of steel, cement and refractories, this has led to substantial price decline and entailed a series of takeovers and mergers, partly encouraged by the government. HolcimLafarge, BBMG Jidong, Conch and others have thus gained a market power that makes life harder for smaller competitors. The intended merger between RHI and Magnesita, creating the world’s biggest refractory company, seems more than logical in this context. And it will not be the last one.
Besides those economic challenges we have to talk about environmental issues. Steel, cement and refractory production processes are high temperature processes. Raw material preparation and the production process itself cause high energy consumption and emissions. Especially the cement industry is a main target of criticism because of its CO2 emissions. As a consequence there are taken every kind of measures to improve the environmental balance, like raising the cement/clinker ratio (composite cements), usage of secondary or alternative fuels to save primary fuels or even to develop new cement types which could be produced at lower burning temperatures. We see Refratechnik as a professional partner to cement industry, ready to cooperate and develop new material refractories which save energy and thus reduce emissions.
But CO2 is not our only concern. We also have to consider SOx, NOx, fine dust etc. The new legislation in China and particularly the actions taken by the environmental authorities with regard to raw material and refractory production plants show very clearly the high importance of the environmental issue to the government. This means that all these production facilities have to invest in exhaust gas cleaning systems to fulfill the requirements concerning emissions or will be shut down. As a side effect economically unsound enterprises with backward technology will be phased out and overcapacities in the market will be reduced.
Premier Li said: "We will strictly enforce environmental laws and regulations, conduct inspections and hold violators accountable. Illegal dischargers and fraud will be severely penalized. Officials who do a poor job in enforcing the law, knowingly allow environmental violations, or respond inadequately to worsening air quality will be held fully accountable. Tackling smog is down to every last one of us, and success depends on action and commitment. As long as the whole of our society keeps trying, we will have more and more blue skies with each passing year.” (RefWin Vol.111, Page.4)
These absolutely necessary actions will lead to higher production costs of raw material and refractories. Consequently the price level for refractories will rise significantly.
By the way, Zibo Refratechnik is a model company at Shandong province.
Refwin: Where do you source your raw materials? Are you faced with difficulities in getting good qualities materials at reasonable prices for some products?
Dr. Bernd Scheubel: Refratechnik has its own Magnesite mine in the Rocky Mountains in Canada. Till now we mainly use the produced causter for water treatment and agricultural applications. It is also a strategical reserve in case of problems with raw material supply. Generally speaking, for refractory production in China we use Chinese raw materials and in Europe European raw materials.
In China we state a raw material shortage caused by environmental restrictions, controlling of explosives and closures and mergers of mines, which logically leads to a considerable increase of raw material prices and correspondingly refractory prices. This situation in combination with a stronger RMB naturally erodes the international competitiveness.
Refwin: Average prices of China basic bricks have been declining continuously since 2013 year. More refractories players compete on prices in order to maintain their market share. What efforts do Refratechnik make to lower the cost and increase the profit?
Dr. Bernd Scheubel: Declining price levels during the last few years are mainly due to two facts: decreasing raw material prices and overcapacities both in customer industries and the refractory industry. Number one is vanishing already: raw material prices are rising, mainly as a consequence of the above discussed investment in clean sky technology and shortage due to production stops. Overcapacities in our customer industries lead to lower capacity utilization rates and thus support a trend to commodity bricks and less consumption. Last year in China the refractory output and export fell by about 9-12%. As soon as the capacity utilization rises again the trend may return to high quality material.
Another real negative trend affecting profits are adverse payment conditions. If you take a look at the balance sheets of public listed refractory companies you find accounts receivable of about 40-80% of the turnover. Payment periods of 180 days or one year and customers that even then do not meet their obligations lead to extremely tense business situations. Thus industry is financing their customers on their own expenses. Maybe there is a certain truth in Mr. Liu Baikuan’s statement at the 7th IRC in Xi’an last year, that the refractory industry in China is committing suicide.
Analyzing some of the financial statements of cement industry’s public listed customers however, you will find payment periods of 30-60 days for their customers and doubled or even higher profits during the last year. So, why don’t they pay their suppliers on time?
Refwin: Refratechnik has been a member of WRA and ACRI. What do you expect to benefit from refractories industry associations?
Dr. Bernd Scheubel: Refractory associations on the one hand are a very important link between the industry they represent and governments. For example, the European PRE, (Refratechnik is also direct member), is lobbying the European Commission and other European institutions with information exchange and suggestions, especially with regard to intended laws and regulations. On the other hand, refractory associations like PRE or ACRI support initiatives in R&D, working safety, environmental and technical issues within the industry or in cooperation with related industries.
The World Refractory Association, however, is connecting regional associations like ACRI or PRE and the major refractory companies like RHI or Refratechnik. The aim is to harmonize standards and definitions for statistics or import tax codes for the whole industry.
China covers about 65-70% of the world’s refractory production with about 2000 companies.Thus every kind of refractory issue in China is affecting the rest of the world refractory industry. Therefore it is very important for Refratechnik to be member of the Chinese association ACRI and to take part in this development, not only as a Chinese refractory producer but also as major international player. .
Refwin: What are the opportunities for Refratechnik under the current downturn in global overall demand? How do you see developments in the medium term?
Dr. Bernd Scheubel: You are absolutely right in stating that the refractory industry faces a global downturn. The bitter truth is that we partly have to blame ourselves for it. Decisive for the refractory consumption is the specific refractory consumption and the amount of produced cement and steel. Both cement and steel production can be easily correlated with population growth, which entails a growing demand for cement and steel. However, if we take a look at the specific refractory consumption, for example within the steel industry in China, the specific consumption went down from 60 kg per ton of steel to about 20 kg. World average is about 12-14 kg and the long term aim may be around 5 kg refractory per ton of steel.
The same applies to the cement industry where basic brick consumption went down from over 1 kg per ton of cement to 100 gr or even less. This development is certainly due to better controlled production processes in steel and cement industry but also to much better refractory qualities. The Chinese refractory industry, however, increased its capacities in a tremendous way during the last years, resulting in an overcapacity of millions of tons. Another culprit, especially in cement production, is the emission of CO2. As a consequence, production increasingly shifts to composite cements with a lower clinker factor, or cements with low temperature clinkers that require low refractory qualities.
Refwin: What measures have to be taken?
Dr. Bernd Scheubel: First of all companies must adjust their payment conditions. Payment should be made within the set deadlines, defaults should be penalized.
Secondly, we should compete in the market of quality and quality has its price. We should not compete in the question of the lowest price or the best payment conditions for the customer. Thirdly, we should offer additional value for the customer. That means innovation, technical expertise and technical service. Simply solve your customers problems and get payed in time.
Refwin: Thank you very much for talking to us!