ASX symbol CMC

China Magnesium Corporation Limited

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Magnesium Overview

Magnesium is the lightest of all the structural metals with a density that is only  two-thirds that of aluminium and one-quarter that of steel. The main advantage of magnesium is its strength to weight ratio, which is considerably higher than that of competing structural metals. Further, it is the eighth most abundant element in the earth’s crust.

Magnesium has the following three principal uses as well as various other relatively minor uses:

1. The principal constituent in magnesium alloys used chiefly in the production of die-cast parts, mainly for the automobile industry (this is the largest market).

2. A minor constituent of aluminium alloys used in most applications for aluminium (especially beverage cans).

3. A desulphurising agent in the production of steel.

There are two basic types of primary magnesium production processes that are being used today: the electrolytic and the thermal methods of reduction. The predominant method being used today is the thermal method. The most widely used thermal process is the Pidgeon process, a batch process which is used almost exclusively within China – the dominant magnesium producing nation – and uses dolomite as its raw material. Dolomite is a calcium-magnesium carbonate (MgCO3.CaCO3) which is plentiful within China and is similar to limestone. This production method has grown since the 1990s at the expense of electrolytic processes.

The remaining large magnesium production plants in the world outside China use electrolytic processes. At the present time, thermal reduction by the Pidgeon process is the most commercially robust form of magnesium production that is being used on a large scale. Plants which use the Pidgeon process in China generally have lower operating costs, rely significantly less on economies of scale and can be built in a fraction of the time and at a fraction of the cost of electrolytic plants.

The Pidgeon process involves calcination of the dolomite by heating to remove the carbon (in the form of carbon dioxide) from the magnesium carbonate molecule within the dolomite, leaving behind oxides of magnesium and calcium. The calcined dolomite is then mixed with ferrosilicon (the reducing agent) and heated under a vacuum to the extent that the magnesium oxide is reduced to a magnesium vapour (while the oxygen forms a solid compound with the silicon), which is then captured and cooled to solid crude magnesium. This is then smelted to produce high purity magnesium ingots.

Recycled magnesium is also an important component of supply in the magnesium industry, particularly in the USA, where the magnesium market is presently protected from Chinese imports by high antidumping duties.

China’s domination of the world’s magnesium industry continues to grow in both supply and demand and this trend is expected to continue. China accounted for 77% of global primary output of approximately 860kt in 2007 and an additional 215ktpy and 48ktpa has or is expected to be added to new primary production capacity within and outside China (respectively) over 2007-2009.

World consumption of magnesium increased sharply between 2002 and 2005 to reach about 800kt (from about 575kt in 2002). Despite rising demand in China, consumption appears to have levelled out in 2006 because of falling demand in the USA and Europe. Global consumption is however understood to have increased to about [850kt] during 2007, largely because of a 60% increase in Chinese consumption to about 250kt or 30% of world demand.

Global magnesium consumption is expected to rise at an overall rate of about 6%pa up to 2012, resulting in a market of more than 1.1Mtpy. Its single largest use, die-cast alloys for the automotive industry, is expected to show the fastest rate of about 10%pa, underpinned largely by Chinese vehicle production. The use of magnesium cast alloys in computers, communications and consumer electronics, principally for injection moulded housings, and uses for the desulphurisation of steel, is also expected to grow strongly.