Europe looks to increase domestic magnesium production

The European Commission is looking to strengthen the EU's industrial value chains and will be preparing a legislative proposal to increase domestic production of magnesium and other critical raw materials as indicated in the REPowerEU Action Plan, an EC official told S&P Global Commodity Insights.

The value chains will be strengthened through "de-risking projects of strategic European interest in primary and secondary materials production, diversifying the sourcing through the strategic partnerships, and building reserves to increase resilience against supply shocks and global crises," the official said.

The REPowerEU Action Plan released May 18 aims to diversify the EU's energy supplies away from Russia and accelerate its expansion of clean energy, increasing demand for critical minerals.

According to the International Magnesium Association, China produced 82% of the estimated 1.164 million mt/year of magnesium produced globally in 2021, with the EC noting that China provides more than 90% of the EU's primary magnesium.

"Europe has no trade defense systems like the US and is almost completely depending on imports from China," IMA President Rick McQueary told S&P Global.

"About 15% of the global production is still outside China, so customers need to evaluate the option of securing 'back-up' sourcing from these sources," he said, adding that short-term customers needed to evaluate different business options including safety stocks and early warning systems.

"Traders can also play a major role in minimizing the risk in supply from China," McQueary said.

"Most of China's production capacity is based on an energy intensive process, which has been offered at the lowest possible cost for the past decades. For this reason, since 2001 there is no production of magnesium in Europe," the EC official said.

The EU's structural dependencies were emphasized in September 2021, the official said, when coal shortages led to an energy crisis and stricter implementation of environmental targets resulted in temporary closures of many magnesium plants in China.

This resulted in lower global magnesium supply for EU industries, with stocks dropping to "dangerously low" levels, which threatened curtailments in aluminum and steel industries, he said.

While exports have resumed since and prices have fallen, the price of magnesium metal is still high and there is concern about security of supply, the official added.

European magnesium prices have been falling in 2022, with the Platts weekly European free-market assessment for min-99.8% magnesium assessed at $4,100-$4,300/mt in-warehouse Rotterdam for the June 10-16 period, down 55% since the start of the year, according to S&P Global data.

Working group

In response to the shortages, EU member states launched the Critical Raw Material ad hoc working group in January to work on the resilience of EU value chains, with magnesium metal chosen as the first case.

"Our target is to identify industrial projects that can be operational by 2025, which could help domestically sourcing at least 15% of the EU's magnesium needs by 2030, lowering their carbon footprint," the official said.

The current needs of the EU industry are around 200,000 mt/year of metal magnesium, so the domestic production target would be more than 30,000 mt/year in the next decade, he added.

To achieve this, several members states and associated partner countries have been working with their industry to identify their magnesium needs, mining and processing capacities, and the necessary investment and framework conditions required.

There are several projects looking to produce metal magnesium with a lower carbon footprint, as well as recover metal magnesium from secondary sources, such as mining waste deposits, which would also contribute to a zero waste and circular economy, the official said.

"More importantly, we have identified the necessary framework conditions for these projects to be developed," he said, adding that this included a predictable low energy cost, long-term stable magnesium price and trade defense instruments to protect infant industries from unfair competition and dumping.

McQueary said a typical new primary production would have 15,000 mt as a first step, such as the Esan plant in Turkey, although most projects were foreseeing a later capacity increase to 30,000-45,000 mt.

Challenging

It would be challenging for the EC to achieve a level playing field for raw material production in Europe, because of the fundamental differences in production costs and compounded lately by increasing energy prices, McQueary said.

"The EU action plan is also based on ETS systems and on CBAM, but the results of such systems are uncertain and may only show effects at some point in future years," he said.

McQueary said the EU should support CAPEX funding for a low CO2 primary production technology and ensure a level playing field for access to green energy and raw materials.

There was a move to increase magnesium supply elsewhere too, he said, with definitive projects in start-up phase in several regions, like Canada and Australia, while Western Magnesium in the US had also claimed a 100,000 mt final capacity.

"Most of this new technology comes at some cost premium so future activity will depend on the end user tolerance for risk aversion and willingness to pay higher prices if so required," he said.