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U.S. Magnesium to increase capacity

Keywords: Tags  U.S. Magnesium, magnesium, Rowley expansion, brownfield, automotive, aluminum, London Metal Exchange, LME anti-dumping


CHICAGO — U.S. Magnesium LLC plans to increase primary magnesium production at its Rowley, Utah, plant by 20.5 percent to 76,500 tonnes per year.

The new production, expected to come online in 2015, will require new equipment at both the metallurgical and chemical sections of the plant, the company said in a release dated Feb. 10.

"The associated unit cost reductions, combined with a favorable energy outlook for (U.S.) manufacturing, should solidify our position as a sustainable, long-term, low-cost producer of magnesium," U.S. Magnesium president Ron Thayer said in a statement.

The Salt Lake City-based magnesium producer said it completed an engineering study last year examining the possibility of boosting capacity to 90,000 tonnes per year to meet increased demand. That move came after the company boosted capacity at the Rowley plant in 2012 to 63,500 tonnes per year from 42,000 tonnes previously ( amm.com, July 10, 2012).

U.S. Magnesium did not provide a price tag for the latest expansion but noted that a brownfield project entails less risk and expense than a new production facility. Anti-dumping duty orders against magnesium from China also were necessary to justify increasing capacity in the United States, Susan Slade, vice president of sales and marketing, said in a statement.

A greenfield project for a magnesium plant of similar production capacity could cost up to $1 billion, market sources said.

U.S. Magnesium did not provide a timeline for when it might get to 90,000 tonnes per year, but market sources said that goal might not be achieved until as late as 2017.

The global market is not short of magnesium because of overcapacity in China, so expectations of increased domestic demand, while important, were probably less critical to the decision to expand than the potential for higher capacity to reduce production costs, market sources said.

Lowering costs is especially important if U.S. Magnesium wants to boost its presence in markets outside of the United States, market sources said. While Chinese material is largely blocked from the United States by import duties, other markets don’t have the same trade barriers, they noted.

"It’s unbelievable the efficiencies when you run at that kind of capacity. It lowers the cost of every pound you make," one consumer source said. "I’m not sure the demand is there. ... But it would really drive down their costs."

The 2012 expansion involved debottlenecking operations and ramping up existing but underutilized equipment, market sources said. An expansion to 90,000 tonnes per year will require a much bigger investment and is riskier because it entails expanding almost all aspects of the Rowley plant, they said.

"It becomes a question of where demand and pricing are going," one producer source said. "But it’s something that’s in the air, that they’ve talked about with their customers."

U.S. Magnesium might be looking to boost capacity to meet increased demand because more aluminum—which uses magnesium as an alloy—is going into the automotive market, some market sources said. In addition, the automotive sector also is seeing increased demand—albeit not on the scale as that for aluminum auto body sheet—for magnesium parts such as instrument panels and steering wheels as automakers look to reduce the weight and complexity of vehicle components, they said.

But others said they didn’t see automotive demand alone as enough to justify boosting capacity. They suggested that U.S. Magnesium might instead be looking at ramping up capacity should a London Metal Exchange futures contract allow for the metal to become a more freely traded commodity.

"Then U.S. Magnesium always has a customer. They can just ship to the LME like the aluminum guys do," the consumer said.

The Minor Metals Trade Association once considered launching an online price discovery system alongside the LME for 12 minor metals, including magnesium ( amm.com, Sept. 11, 2009), but that proposal failed ( amm.com, Nov. 23, 2009).

Other market sources brushed aside the idea of U.S. Magnesium expanding in advance of a currently nonexistent LME contract.

 


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