China is the world’s largest market for refractories production, consumption and export. Its refractory industry has supported the rapid development of steel and other high-temperature industries. However, in recent years, affected by shrinking market demand and sharply rising costs, the benefits of refractory enterprises have declined and the prospects are not optimistic. The reporter interviewed Vice President Xu Dianli, in order to give readers a more comprehensive understanding of China’s refractory industry.

Reporter: Refractory industry plays an irreplaceable role in the development of high-temperature industries such as steel, non-ferrous metals, cement and glass (862, -5.00, -0.58%). In your opinion, what’s the development history of China’s refractory industry?

Xu Dianli: Refractories are mainly used in steel, cement, ceramics, glass, non-ferrous metal smelting, and electric power industries, of which the steel industry is the largest consumer of refractories, with a consumption accounting for 60%-65% of the total consumption of refractories.

Since the reform and opening up, China’s refractory industry has experienced three stages of development. The first stage is the 1990s, the early stage of reform and opening up when a number of private refractory plants were built because of the small investment in refractories and relatively low technical requirements. At that time, the competition was between state-owned enterprises and private enterprises. The second stage is after 2000 when the rapid development of downstream industries drove the rapid expansion of demand for refractories and promoted the rapid development of the refractory industry led by private enterprises. The competition in this phase is between traditional private enterprises and the emerging private enterprises. In recent years, as the standardization of the purchasing process of the downstream industry enterprises, the refractory market has shifted to the superior enterprises, and now it is the game between large refractory enterprises.

At present, private enterprises have enjoyed absolute dominance in the refractory industry, while refractory output of the state-owned enterprises only accounted for less than 5% of the total output.

Reporter: What is the position of China's refractory industry in the international refractory market?
Xu Dianli: China's refractory material production accounts for about 65% of the world's total production. In fact, the domestic demand for refractory materials also accounts for over 60% of the world's total demand. The proportion of imported refractory materials to domestic demand is less than 0.5% each year, and the proportion of exported materials to total production is less than 10%. However, in the past decade, China has been the world's largest exporter of refractory materials.
Domestic refractory materials, regardless of quantity, quality, or variety, can meet the demand for refractory materials in the production, operation, and technological development of China's high-temperature industry.
Reporter: How was the overall operation of China's refractory material industry in 2014?
Xu Dianli: In 2014, due to the downturn in downstream industries such as domestic steel, especially the decrease in demand for refractory materials for infrastructure, China's refractory material production reached 27.9715 million tons, a year-on-year decrease of 4.48%.
In 2014, the export trade volume of refractory raw materials in China once again exceeded 3 billion US dollars, reaching 3.33 billion US dollars. Among them, the export volume of refractory products was 1.8623 million tons, a year-on-year increase of 5.27%; The export trade volume was 1.534 billion US dollars, an increase of 9.73% year-on-year, and the comprehensive average price increased by 4.24% year-on-year. In 2014, the import volume of refractory products in China was 25100 tons, a year-on-year decrease of 26.45%.
Reporter: What are the main problems currently facing China's refractory material industry?
Xu Dianli: The first issue is the severe overcapacity, which leads to oversupply and disorderly competition in the market, making it difficult for some refractory enterprises to produce and operate. According to research conducted by relevant local associations, in the third quarter of 2014, nearly 60% of small and medium-sized refractory enterprises in some of the main refractory production areas were in a state of shutdown or semi shutdown.
The second reason is the high accounts receivable, which further increases the financial pressure on enterprises. A survey on the business status of 58 key refractory enterprises found that at the end of 2014, the total amount of accounts receivable from key enterprises was 12.856 billion yuan, an increase of 937 million yuan year-on-year or 7.86%.
Thirdly, although China has abundant refractory mineral resources, the phenomenon of excessive mining, destruction, and waste is severe, and resource protection is urgent.
In addition, with the implementation of the new environmental protection law and the introduction of the "Normative Conditions for the Refractory Industry", the threshold has been raised, management has become more standardized, and the pressure for the survival and development of refractory enterprises has also increased.
Reporter: How is the process of joint restructuring of refractory material enterprises?
Xu Dianli: There is a strong degree of joint restructuring in the refractory material industry, especially among several listed refractory material companies. They have made rapid progress in enterprise joint restructuring, and many enterprises have rapidly expanded their production scale through joint restructuring, forming several large refractory material enterprises with strong competitiveness. Before 2010, there were only 1-2 refractory material enterprises with sales revenue exceeding 1 billion yuan, but now there are more than ten.
Reporter: What is the future development trend of China's refractory material industry?
Xu Dianli: The main downstream industries are affected by overcapacity, and the contradiction between supply and demand in the market is prominent. The situation of low prices and low benefits is difficult to change in the short term, and the market demand for their products has entered the peak arc zone.

With the advancement of refractory technology and the improvement of performance, the consumption of refractory materials per unit product will gradually decrease. The research results of the Refractory Materials Association indicate that the consumption of refractory materials per ton of steel in China's steel industry under the overall contracting procurement method has decreased to 15 kilograms, but there is still a significant gap between the consumption of refractory materials per ton of steel in China and the international advanced level.
Therefore, under the multiple effects of overcapacity in downstream industries in China and technological progress reducing unit refractory material consumption, the demand for refractory materials in China will show an overall downward trend of fluctuation.
Under this major premise, China's refractory industry should first realize transformation and upgrading, adjust the industrial structure, expand the results of joint restructuring, improve the industrial concentration ratio, and adapt to the New Normal. Secondly, we should focus on technological innovation, put in effort in industry, academia, research and application, and independent innovation to improve the competitiveness of the entire industry. Finally, under the management of the new environmental protection law and the "Standard Conditions for the Refractory Industry", we should focus on energy conservation and environmental protection, and create comprehensive green refractory materials.