Supplying heat-resistant materials to steel plants, cement makers and other companies that deal with high-temperature materials is a big business. Magnesita Refratarios S.A., the third-biggest maker of refractories in the world, recently reported its earnings for the fourth quarter of 2008, and showed an increase in sales to 451.6 million Brazilian reais ($200 million).
The Contagem, Brazil-based company isn’t satisfied with third place, however, and plans to become the world’s biggest producer of heat-resistant bricks, shrouds, snorkels and nozzles, a goal it intends to reach through both acquisitions and winning over new clients with its broad range of products, specialized solutions and superior service.
“We’re putting all our resources and efforts into make that the case,” said Pablo Serafin, mergers & acquisitions manager for Magnesita. “All our actions, all our attention, are on that goal. Given what’s going on in the world economy, and in our main industry, which is steel, we have to make sure we act carefully. But none of our goals have changed; we still want to be biggest.”
Refractories are materials used to protect equipment that handles very high temperature materials, such as molten steel. They can be made in the form of bricks for the inside of ovens or kilns, or in a granular form to line certain types of surfaces, or in the shape of the different kinds of vessels and channels that are used to transport steel while it’s being made.
The steel industry is the biggest user of refractories, representing about 70 percent of the world market, Serafin said. Cement companies make up another 10 percent, with the rest going to nonferrous metals producers, petrochemical makers, glass makers and others. The refractories have to be replaced with varying frequency, from every six to eight months in a cement plant, to as often as every few hours in a steel plant.
“The replacement cycle changes a lot from application to application,” explained Serafin. “Steel uses the most throughout the product lifecycle. Some refractories in steel plants have to be replaced every two hours, for instance in equipment that controls the flow of the liquid metal.”
Magnesita has the production capacity to meet the demand created by the need for constant replacement. The company has 24 production units, including 10 in Brazil and Argentina, added through a recent acquisition in the U.S., Germany, France, China, and Taiwan, which combined can make 1.4 million tons of materials a year. Magnesita bought LWB Refractories, a German company, late last year as part of its expansion plan. The purchase added 146 million reais in revenue in the fourth quarter.
Before that acquisition, Magnesita’s sales were concentrated in Latin America, where it was by far the dominant producer. In Brazil the company has 75 percent of the market for the steel industry and 90 percent for the cement industry. Until two years ago, the company was family owned, with more than 80 percent of sales coming from Brazil and the rest of South America. GP Investments, the biggest private equity company in Latin America, then bought the company and started its internationalization. Before the acquisition of LWB, Magnesita exported raw materials and finished products to more than 50 countries; the company achieved a broader customer base through the purchase.
“We have people that don’t just sell the product, they also install the product for several customers, people within the steel plant who do the work for them, the maintenance etc.,” said Serafin. “We embed a lot of services and products in one package. That’s really appreciated by them. They like this relationship. That’s why we expect to grow by using this same approach in Europe and the U.S.”
Magnesita has been very successful in Latin America because of its dedication to service, and its innovative contracts with its customers. Clients can buy more than just the refractory materials themselves; they can buy a service contract that frees them up from many of the day-to-day tasks that a specialized company can perform more cheaply and efficiently.
Another of the company’s competitive advantages is its access to high-quality raw materials. Magnesita was founded 60 years ago after a huge deposit of magnesite was found in Brumado, in the northern state of Bahia. The company still gets as much as 80 percent of its raw materials, also including dolomite, cromite and clays from its mineral deposits.
Most refractories are made from the oxides of magnesium and aluminum. The materials are mixed and formed based on what they’re going to be used for, and processed at extremely high temperatures, as much as 1700 degrees Celsius (3100 degrees Fahrenheit). Magnesita is a generalist refractory company, offering a wide product range for most refractory applications. Its biggest plant, which is also one of the biggest in the world, is in Contagem, in the Brazilian state of Minas Gerais. The Contagem industrial site is comprised of multiple plants forming a dynamic manufacturing complex.
Magnesita is focused on more than just production, however. The company’s researchers, including chemists, metallurgists and mining experts at centers in Brazil and the U.S., find solutions for each customer’s needs. They work in various areas, including raw materials, to improve the process for extraction from the mines, and new refractory technologies, which specializes in finding new fabrication processes and tailoring the company’s products to the demands of industry.
“Each customer, even within the same industry, has unique industrial processes, so we have to develop special products and solutions for them,” said Serafin. “Our solutions include not only products but services such as computer-aided simulations to improve the design of equipment linings by running computer simulations. That helps us sell a more complete and integrated solution to our customers.”
The researchers also work to find better, more efficient and less polluting ways to produce and, when possible, recycle their products. Magnesita is dedicated to protecting the environment, and makes sure that all its plants meet the local regulatory requirements. The Brazilian unit has earned the ISO: 14000 certificate for environmental management standards.
“We have one initiative in Brazil that’s very environmentally friendly, which is that we take back the refractories after they’re applied and reuse them as much as possible,” said Serafin. “We’re trying to build a more environmentally sustainable model. We still have some material that we can’t reuse, so we make sure it’s disposed of well, and we offer that service to clients.”
Magnesita’s growth strategy, based on winning market share and on mergers, is well under way to reaching its goal of making the company the world’s biggest refractory producer, as measured by sales. The acquisition last year of LWB boosted revenue by almost 50 percent in the fourth quarter, even though the German company’s sales for only November and December were included in the consolidated earnings report for the three-month period. The pace of acquisitions might be slowed by the current economic climate, but its management has no doubts that its goal will be achieved.