RHI Magnesita: The Driving Force of the Refractory Industry
At end of October 2017, RHI Magnesita, which evolved from the merger of RHI AG and Magnesita Refratarios S.A., was for the first time traded in the premium segment on the London Stock Exchange. This merger to form the globally largest supplier of high-quality refractory products, systems and services brings together more than 14 000 employees in 35 main production plants as well as more than 70 sales offices. With a vertically integrated value creation chain from raw material to refractory product- and performance-oriented integrated solutions, RHI Magnesita serves 10 000 customers especially in the steel, cement, non-ferrous metals and glass industry in almost all countries worldwide. The combined company was included in December 2017 in the FTSE-250 index on the London Stock Exchange and, based on its proforma sales of EUR 2,5 billion in the year 2016, it is one of biggest industrial corporations in the index (Fig.1). Reinhold Steiner (RS) – CSO at RHI Magnesita (Fig. 2) – gave us an insight into the company’s strategic orientation. Fig. 2: Reinhold Steiner,
CSO at RHI Magnesita rwf: What were the main strategic ap-proaches to unite RHI and Magnesita under one roof? RS: We have realized what has already been in focus in the last ten years and after several attempts we have now successfully brought the two groups under one roof. The potential for synergies of the two groups is diverse. Together, we reach unparalleled geographic diversity, and accordingly in future we can offer closer proximity to customers and logistic advantages as well as short lead times. This enables an intermeshing of the strong market positions of Magnesita especially in North and South America with ours in Europe and Asia. In the product portfolio, too, we complement each other very well. We are stronger in magnesite products – dolomite products are a strong domain of Magnesita. As it is our goal to offer the customer integrated solutions, with over 120 000 individual refractory products, an extraordinarily extensive and interesting portfolio has been formed, extended from the complementary product groups of the two companies. rwf: What guiding principles have been set for the merger of the two companies? RS: The customer is the first priority in all measures. Speed and flexibility are increasingly important criteria for our customers. With the extended team of refractory experts, we want to work out the best solutions overall for the individual customer. As CTO, Luis R. Bittencourt has taken on the responsibility of ensuring our technology leadership in the industry and present ourselves on the market as the leading supplier of refractories. solutions. The company language is English as around 70 nationalities work within the company. We have made up competence teams with a mix of RHI and Magnesita employees. For the employees, we are endeavouring to ensure high transparency of the change processes and very clear communication of the integration measures. Good for this is also the recently created APP, through which every employee – whether in production, administration or in sales – can obtain information or exchange thoughts on a wide range of topics. This promotes collaboration between departments and divisions. It is important that we try to actively integrate everyone. In the sales organization, we have provided clarity with regard to the responsible contacts. Here, sometimes difficult decisions had to be made as in the sales areas we had to streamline the teams to avoid duplicating positions, but for the customers it is important to ensure seamless continuity and one defined, competent contact person. Fig. 1: Position of RHI Magnesita in the FTSE-250 index rwf: In the past, the Magnesita plants were underutilized, in some cases with 70 %. Can that be optimized in the new constel-ation? RS: Last year, we registered a volume growth in the orders, and as a result, capacity utilization has developed very positively, but, naturally, we want to contribute our experience and optimize production, further improving the process engineering (automatization, energy efficiency). In this way, improvements of more than 10 % are to be achieved. To sum up, it is a matter of measures for optimization of the production network. Various goals are pursued at the same time: on the one hand, the optimization of the freight costs, both the prior- carriage costs, that is from the location of the raw materials to finished production as well as later to the customer, and on the other hand the reduction of the complexity of the production lines at the sites. The product portfolio is too wide at some sites and accordingly sometimes the production processes are too complex, which naturally has an effect on the costs. With the transfer of products to the optimum sites worldwide both with regard to logistic and technical aspects, we are achieving at the same time an increase in quality consistency and an optimized chain of supply to our customers. That means in concrete terms shorter lead times and faster response. Fig. 3: Strategic mining – RHI Magnesita rwf: In the past, RHI and Magnesita relied strongly on backwards integration in the respect of their own raw material reserves. This is particularly valuable at present as on account of the political decisions made in China some raw material prices have increased sharply. In the new constellation, how high is the share of raw materials processed internally? How does the increase in the cost of buying in materials impact you? RS: Through Magnesita, we have the best magnesite deposit in the world and a total of ten main raw material plants (Fig. 3). RHI had to part from its dolomite business in Marone/IT and Lugones/ES because of EU Commission regulations. For the products of our core business, we can supply 70 % of the raw materials from our own deposits – on average that stands at around 50 %. On account of the initially low global market prices, we had to close the smelting plant in Norway where magnesia recovered from sea water is further processed to high-grade fused magnesia. To increase backwards integration for the key raw materials in future, the decision was taken to start up partial operation of our raw materials plant in Norway. The availability of own raw materials enables RHI Magnesita to guarantee a consistently high product quality.
We want to sustainably stabilize our raw materials segment by supplying other market segments (e.g. environmental engineering, construction, chemical industry, hydrometallurgy, etc.), and thereby improve capacity utilization and consequently the cost structure of the Raw Materials Division (Fig. 4). Volatile global market prices for raw materials and now, on top of that, high prices are a big problem for the entire production chain. Despite our increased backwards integration, we are and will remain dependent on Chinese raw materials. For that reason, the dramatic increase in the market prices of several key Chinese raw materials, especially fused and sintered magnesia, have, of course, had a severe impact on RHI Magnesita’s cost structure in recent months. In China, the problems began specifically in April 2017 with the increase in the magnesite prices, followed by price rises for bauxite and graphite raw materials. Behind these price rises are the targets for reduction of CO2 emissions approved back in 2011 as part of this 5-year plan. In December 2016, an environmental tax was introduced for control of the emissions. Chinese raw material companies are now strictly controlled and have to cease production if the regulations are not complied with, which leads to further tensions on the raw materials market. We can’t get round this, but with transparent and systematic information, we could communicate to our customers price rises quickly and effectively, and in this way guarantee the profitability of the company in this difficult situation, too. It isn’t just the drastic price increases for Chinese raw materials, it is also difficult to reliably obtain the required qualities. Fig. 4: Diversification areas for mineral sales rwf: What other requirements did the European Commission specify with regard to the merger of RHI AG and Magnesita Re-fratarios S.A.? RS: As I mentioned earlier, RHI had to part from the entire dolomite business in the European Economic Area, Magnesita from the entire business, which included the production, sale and associated activities of magnesia-carbon bricks and was concentrated in Oberhausen/DE. In September 2017, RHI and Magnesita voted to sell these plants for EUR 42,6 million to INTOCAST Aktiengesellschaft Feuerfest-Produkte und Giesshilfsmittel. At the end of November 2017, the European Commission granted the necessary approval. Accordingly, the antitrust demands have been fulfilled. rwf: What will the most important topics at the research laboratories in Leoben/AT, Contagem/BR, York/US and Dalian/CN be in the fields of process engineering and material development? RS: Here, too, the focus is on customer orientation. The goal for our more than 250 employees in the R&D Departments is to optimize the business by conducting diverse technical studies for support of the Mining, Production, Quality, Sales and Technical Marketing Divisions. That has effects on the entire value chain. We aim at continuous technological improvements for the benefit of the customers. More than 340 technical engineers across 90 countries are working on-site with clients to provide custom-made solutions, installation support, recycling, post-mortem analysis and more (Fig. 5). Ultimately, we want to create competitive advantages for the customer. Focus here is on additive manufacturing (3D-printing), healthy and environmentally-friendly products (including the use of recycled materials, whenever possible) and Chinese products for the Chinese market. To improve the sustainability of the production processes, energy efficiency and improved product quality are the main drivers in process development. With regard to the current raw materials supply scenario, we shall continue to increase focus on increasing the vertical integration of the company with regard to raw materials by using our mineral resources. At the same time, to optimally utilize our production capacities, we shall increase sales of raw materials especially to non-refractories segments. Fig. 5: On-site technical experts deliver innovative solutions rwf: In the R&D sector, RHI introduced innovation management several years ago to take a more comprehensive view of different aspects. Digitalization was communicated as an important topic. With Industry 4.0, in branches that are already further in this respect, new business models have been developed. What could that look like in refractories? RS: We are working very practically on models that we are already discussing with the steel industry. The first cooperation contracts have been concluded. We are starting with the customer’s production plant and want to learn what stresses the material is exposed to at the high temperatures in the converter, furnace, etc. Many developments so far have been based on methods involving the simulation of practical conditions in laboratory-scale equipment and pilot plants. In industrial plants new functionalized refractory materials are needed that enable measurement data to be determined directly in field conditions. We have to integrate modern sensors in the refractory material. We are helped here by the know-how of the Agellis Group AB/SE, 100 % of which we acquired in October 2017. Agellis specializes in ultramodern electromagnetic measurement systems as well as infrared technology. It is part of the RHI Magnesita Systems & Advanced Technologies Division. The Agellis products contribute to optimizing production processes for metal smelting and thereby increase earnings, improve quality, reduce maintenance and increase safety in production plants. We are combining this know-how with our expertise in refractories. rwf: To analyse customer processes, you need extensive production data – can that be achieved in joint projects with customers? RS: It is correct that both partners have to be more closely networked as not only current process data, but also a history of such data is needed to derive useful information. So far we are looking at processes end-to-end from deposit to product to realize optimization. Now we are reversing this approach and analysing the refractory material in operating conditions to initiate optimization in our processes going back to the raw material. Certainly, this requires an excellent basis of trust with the customer. But you can say that the time is now ripe for this because our customers are also challenged to implement Industry 4.0, and to do this, they need to get their suppliers on board. Talks, I am currently having with CEOs of various customers, are constantly confirming that we are on the right track with this new approach. rwf: Besides technological further development, what do the plans look like for further extending the leading position on the market you have following the merger? RS: We want to selectively develop or cultivate more intensively markets in regions that are profiting from more dynamic economic growth. Especially with the strengthening of local sites close to the customers, we want to consolidate our positions. That applies to China and India, where the per capita steel demand (especially in India) will continue to grow. The ASEAN region will also grow. With this approach, we also see further potential in the North American market. First, we are working on organic growth of RHI Magnesita – in the mid- to long-term, other acquisitions may be considered. rwf: Thank you for talking to us.