The Chinese government has continued to launch a series of environmental inspections on heavy industries in the country in order to strengthen its control over industrial pollution levels and environmental quality.
Industrial activities are influenced by the inspections, and a number of enterprises which have not reached the required standard will be strictly supervised or shut down.
Most prices for industrial minerals have in the recent past shown an upward trend, because the lack of sufficient supply caused by the inspections created a bullish effect in the spot markets.
Earlier this year, China’s Ministry of Ecology and Environment announced that the country will continue to carry out its first round of strict environmental inspections, and will complete a second round of inspections within three years under the supervision of the central government.
In mid-March, the minister for environment, Li Ganjie, said that, while specific steps have yet to be outlined, the three-year plan will broadly focus on "controlling pollution in key areas and from heavy industries."
Three inspection teams from the ministry have been deployed for the first round of environmental inspections, according to meetings held by bureaux of supervision in northern, southwest and northeast China on April 23-24. The inspection groups will stay in the inspected units for around one month.
Governments in each province of China have also made more effort to control environmental pollution, and to accelerate industrial restructuring and upgrading, in order to reduce ecological environment pressure.
Since April, Liaoning province has restricted magnesite mining for environmental inspections, Hebei province brown in stricter regulation for local companies, Shanxi province has started a new round of environment inspection in Lvliang and Jinzhong, and Sichuan province has started inspections regarding health and safety in sectors including steel, coal and electrolytic aluminium.
Shandong province is expected in May start a new environmental inspections in four cities – Zibo, Dongying, Taian, and Linyi.
Since last year, production limits and shutdowns have resulted in significant changes to some industries.
The wide-reaching government action related to the implementation and tightening of the environmental policy had serious consequences for a number of mineral supply chains in the country, including bauxite and alumina, graphite and magnesia, and titanium dioxide.
What follows is a breakdown of how these mineral commodities have been affected to date.
Bauxite mining in Shanxi, China’s principal producing province of the refractory-grade mineral, has been targeted by government authorities on and off since 2016. The first wave of clampdowns, which very much resembles the situation today, had the double aim of reducing widespread illegal mining of the mineral, as well as improving the sustainability profile of bauxite mining and processing, reducing pollution affecting the local air and water.
From mid-November 2017 to mid-March 2018, a temporary shutdown was put in place in Shanxi and Henan, the latter being the main province for production of fused alumina. During the four-month period, industrial production of bauxite and alumina was severely reduced, a pattern that kept stocks low and upheld prices.
Then, at the end of March, fresh regulations from the national government set out a three-month plan for proper management of local land and resources, tackling unlicensed exploration and illegal exploitation and mining of bauxite.
Shortly after, in the week of April 16, bauxite calcination plants in Shanxi were ordered to halt all operations once again, pending new inspections. Sources said that this closure may last as long as two months, until the end of June.
For its part, the alumina industry was hoping that the market would stabilize with a gradual return to normal production flows. This was not the case, however, because in mid-March, the Ministry of Industry & Information Technology (MIIT) sent a working group to Xinxiang and Anyang, in Henan province, for a supervision meeting on peak production levels.
Exacerbated by bad weather conditions, air quality pollution levels have been consistently exceeding acceptable thresholds throughout the winter, despite the temporary shutdowns.
"This is the situation after months of almost no production," one market participant, who had visited the province, told Industrial Minerals. "If I’m any judge, this won’t deter the authorities. They will continue to impose shutdowns."
The market for magnesite and processed magnesia products experienced a severe squeeze in Chinese output last year, which led prices to spiral upward in the second half of 2017 and to remain firm into 2018.
Mining restrictions remained in place into this year, with dynamite blasting banned and miners allowed only to extract via pneumatic drilling or by hand. This had already affected the availability of magnesite ore for the production of high-grade magnesia, leading to a shortage of high-grade dead-burned magnesia (DBM) and fused magnesia (FM), which is continuing.
In mid-April, a sudden government order brought to a halt all magnesite mining in Liaoning – the largest producing area for magnesia. Several producers in contact with Industrial Minerals confirmed that they had stopped mining, and did not know how long the stoppage would last.
"All magnesia companies have been forced to stop magnesite mining from April 12, following government requirements," a local producer said.
Market prices have so far been unchanged in the weeks since the mine closure, but market participants remain on alert, after witnessing the sharp increase in prices last year.
In line with the restrictions imposed on other mineral supply chains, graphite was also widely affected by the environmental policy-related series of inspections and closures last year, especially in Shandong, the main producing province of the mineral.
This led to a rapid appreciation on the spot market for flake graphite in the second half of 2017, following a number of years of weak pricing. The high price levels have since stabilized in early 2018 and have mostly held steady to date.
Local producers are, however, concerned about a fresh round of production cuts in anticipation of a government summit to be held in Qingdao in June. As seen on several previous occasions, authorities impose a temporary stop to heavy industrial operations in the weeks running up to an event, to improve local pollution levels. Sources expect that they will do the same in this instance.
Production of titanium dioxide in China slowed over the winter months. The increased use of energy for house heating increased air pollution, particularly in the TiO2 producing hub of Panzihua, in Sichuan.
Many producers are reported to have used the period to idle capacity and conduct repairs, with other sites periodically closed down by snap inspections triggered every time the air quality dropped below an acceptable level.
Market participants report that production has seen a strong rebound across China, with temperatures rising, and environmental restrictions have been lifted.
But western consumers expect continued restrictions on Chinese supply, given the lon- term focus on preserving air quality.
"They’ve been pretty clear about what they want to do. They aren’t going to change course now," one buyer told Industrial Minerals. "The increase was seasonal, as we expected, but it doesn’t change the picture."