QMAG Presentation 2008

Magnesia Demand, Supply and Price Outlook
Paul Rix MagMin, Amsterdam 12th May 2009

General Manager Marketing
QMAG Presentation – Global Demand
Global industrial production has declined rapidly.

Significant contraction in demand for resources and minerals.
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Source: Rio Tinto and WSA
Steel production response was significant and rapid.

Production cuts have continued into 2009 but stabilising.
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Short range outlook for apparent steel use (2008-2009) in Mmt
WSA April 2009 2008 2009 2008 2009
World 1,197.4 1,018.6 -1.4% -14.9%
China 425.7 404.4 2.9% -5.0%
EU (27) 181.5 129.2 -8.4% -28.8%
USA 97.5 61.8 -9.8% -36.6%
Japan 76.4 60.8 -4.0% -20.4%
S Korea 58.6 49.5 6.1% -15.6%
India 52.6 53.5 6.1% 1.7%
WSA estimates global steel consumption down 14.9% in 2009.

WSA expects “a mild recovery in 2010”.
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April 2009 2007 2008 2009 2010 2011 2012 2013 2014
World 5.2 3.2 -1.3 1.9 4.3 4.8 4.9 4.8
Advanced economies 2.7 0.9 -3.8 0.0 2.6 3.0 3.0 2.6
Emerging economies 8.3 6.1 1.6 4.0 6.1 6.7 6.8 6.8
IMF forecasts global growth will now be negative in 2009.

Advanced economies will have pronounced negative growth.
Emerging economies growth will fall but remain positive.
Emerging economies will drive global growth positive in 2010.
Global growth will resume to more normal levels from 2011.
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World economy expected to double by 2025.

Emerging economies will continue to drive growth.
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The immediate outlook is for negative global growth in 2009

and low growth in 2010.
However, the medium to longer term economic development of
emerging economies is not expected to be disrupted.
The urbanisation and industrialisation processes in emerging
markets will continue to drive rapid demand for minerals over
the medium to longer term.
Despite the current downturn, Rio Tinto expects world
commodity demand to double over next 15-20 years.
The major resource companies (BHP, Vale and Rio) are still
investing on the basis of rapid growth in emerging markets.
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QMAG Presentation – Global Supply
The short term supply response to the downturn has been rapid
and severe.
Major reductions and closure of minerals/resources capacity.
Some reductions and closure will be permanent.
In addition, availability of capital is scarce and the cost of
capital has increased significantly.
As a result, many new resource projects have been cancelled
or postponed.
When economic conditions and demand recovers, the ability of
supply to respond will be constrained and slow.
New production capacity that is developed will tend to be at
higher marginal cost of production.
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QMAG Presentation – Global Supply
Reduced investment will constrain future supply of minerals.

Reduced exploration will further constrain supply.
Shortages will emerge once growth resumes.
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QMAG Presentation – Magnesia 2008 Review
Like other minerals, the MgO market tightened significantly
throughout 2007 and most of 2008.
Most refractory companies built up inventories of Chinese MgO
ahead of the Olympics due to rising prices/limited availability.
When the world economic slowdown hit, major de-stocking took
place in steel, refractories and raw materials.
Chinese prices fell as a result of falling freight rates, energy
prices, export licence fees and lower demand.
MgO has followed a similar price trend to other commodities.
However, the rise and subsequent fall has not been as great for
MgO as with other commodities such as coal, oil, base metals.
Input costs and, for some producers, exchange rates have also
fallen, easing the financial impact of falling prices.
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Commodity Prices (2005 = 100)

300 Coal
Nickel
250 Iron Ore
Copper
200 Oil
Magnesia
150
100
50
0
Source: IMF, QMAG
2005 2006 2007 2008 2009
Magnesia has been much less volatile than other commodities.

Freight/energy inputs have fallen easing commodity price falls.
Source: Rio Tinto
In addition to input cost reductions, commodity based exchange

rates (such as A$) have also fallen further easing price falls.
QMAG Presentation – Magnesia Demand Outlook
Emerging economies will continue to drive world growth over

the medium to longer term.
QMAG still expects strong long term growth in MgO demand
from steel, cement, nickel, cobalt, environmental and
agricultural markets.
QMAG market study in 2007. Growth in MgO consumption:
• Total MgO growth 4.2% pa (330ktpa)
• Refractory MgO growth 3.8% pa (220ktpa)
• Chemical MgO growth 5.2% pa (110ktpa)
• High value refractory MgO growth 4.3% (70ktpa)
• High value chemical MgO growth 15.3% pa (60ktpa)
While 2009 (and possibly 2010) will be down on previous years,

QMAG stands by these long term growth forecasts.
QMAG Presentation – Magnesia Supply Outlook
Despite the slowdown, Chinese growth will resume and
increase demand for MgO.
Chinese Govt policy will continue to constrain MgO export
availability. This policy shift is fundamental and permanent.
Commerce Minister Chen Deming said the Govt would ensure
high-energy and resource-consuming exports remain curtailed.
• Elimination of export rebates
• Introduction of export taxes
• Restriction in export licences
Policy changes and integration into world economy has

increased Chinese MgO cost structure.
Addition of new global MgO capacity will be limited – scarcity
and high cost of capital, limited high quality deposits, greenfields
capex cost, limited low cost energy, environmental constraints.
QMAG Presentation – Magnesia Price Outlook
MgO demand will be soft in 2009 and possibly into 2010.

Longer term, MgO consumption growth will return on the back
of growth in emerging economies.
Capital scarcity/cost, resource availability and Chinese Govt
policy will constrain MgO supply longer term.
MgO capacity closures of the 1990’s and early 2000’s are
permanent.
Tighter MgO market conditions and higher prices will return in
the medium term.
Rio Tinto: “Our expectation remains that real long run prices
for almost all minerals and metals will average higher than
was the case in the two decades preceding the recent boom”.
QMAG Presentation – Magnesia Price Outlook
Chinese Magnesia Prices US$ FOB Europe
1400
1200
1000
800
US$/mt
CDBM97
CFM97
600
CFM98
400
200
0
00 01 02 03 04 05 06 07 08 09
Demand and supply fundamentals will ensure MgO prices will

not return to the low levels of early 2000’s.
QMAG Presentation – QMAG Response to Downturn
QMAG CCM expansion is well underway but commissioning has
been pushed back to mid 2010.
CCM markets have not been as impacted as refractory markets
and CCM expansion markets remain intact.
Refractory customers are now looking for new lower cost and
higher value in use products.
QMAG is extending its product range – mainly new refractory
products:
• 92% CCM product
• 92% DBM product
• 95% DBM product
• 96% EFM product
• 98-98.5% DBM/EFM products from high purity Yaamba deposit
Flexibility of a natural producer producing DBM, EFM and CCM.
Thank you

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Magnesia Demand, Supply and Price Outlook

Paul Rix MagMin, Amsterdam 12th May 2009

Global industrial production has declined rapidly.

Source: Rio Tinto and WSA

Steel production response was significant and rapid.

WSA estimates global steel consumption down 14.9% in 2009.

IMF forecasts global growth will now be negative in 2009.

World economy expected to double by 2025.

The immediate outlook is for negative global growth in 2009

Reduced investment will constrain future supply of minerals.

Commodity Prices (2005 = 100)

Magnesia has been much less volatile than other commodities.

Freight/energy inputs have fallen easing commodity price falls.

Source: Rio Tinto

In addition to input cost reductions, commodity based exchange

Emerging economies will continue to drive world growth over

While 2009 (and possibly 2010) will be down on previous years,

Policy changes and integration into world economy has

MgO demand will be soft in 2009 and possibly into 2010.

Demand and supply fundamentals will ensure MgO prices will

Flexibility of a natural producer producing DBM, EFM and CCM.

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