For Stefan Borgas, the CEO of refractory products supplier, the $3.5 billion RHI Magnesita, being at the helm means hunting constantly for strategies to expand in this low-growth industry. The head of the Vienna-based company explains the need to tap the circular economy opportunity and foray into digital services in refractory value chain with India as its base. Interview by Ashutosh Kumar.
RHI Magnesita provides refractory materials to cement, glass, steel and copper industries worldwide. How are Indian and global refractory markets changing by demand and growth?
Refractory materials, and services, machinery and equipment that go into it, are essential building blocks of modern life and society. Materials such as cement, steel, glass, copper and nickel cannot be made without refractories. The service that we provide, the heat management, is essential. The industry is, as a result, driven by demand for these materials. About 50% is driven by construction and global infrastructure development, 15% by transportation such as cars and trains and another 15% by machinery industry. That’s the demand mix from our customers.
So, what is going on in these sectors? At the moment, construction and transportation industries worldwide are at a 15-year low because of high interest rates. Construction industry is subdued and transport is transitioning from combustion tech to electrification. A lot of consumers are waiting to adapt to this transition. From global demand perspective, it is a difficult time.
India is the opposite(1). It’s the one light tower in the world really, together with Middle East and, maybe, Africa. Essentially, India is the shining light in this period of economic darkness.
So, what is different here? India is hopefully entering a sustained phase of massive development led by government efforts in last 10 years. The potential was always there, but in last 10 years, there has been a remarkable improvement. Focus, efforts, demography and education are relatively better developed in India than its counterparts. We have a fantastic opportunity here and we see that in the growth numbers. While the world is shrinking, India is growing by 6%.
The second big trend in this industry is decarbonisation. We all have to abide by the global mission of eliminating carbon emissions. Many industries, including refractory, are heavy emitters of CO2. We need to change that. And that change is another major trend.
Where does RHI Magnesita see itself in energy transition and e-mobility ecosystem in India?
We have a particularly strong position in clean and green steel technologies because of our product portfolio and historic technology. About 25 to 30 green steel projects are under execution globally. Two are in India. We are involved in all of them(2). That is one focus area for us. The second area where we have been overproportionately participating is copper. The third area where we are above average is producing clean cement, especially from alternative energies. There is another aspect of these trends, coming from a realisation that we need to be careful about raw materials used. The circular business model of one company using the waste of another as a resource is an opportunity for us. It is our job to see that unused refractory is recycled and used in a new application. That is a very big focus area. We need to work together in value chains to build a circular model.
Refractory market in India has many sectors. Where do you see the maximum potential?
All have huge potential. Steel happens to be an early cycle business. When demand grows, steel follows very quickly. Glass, copper and cement are late cycle businesses as capacities need to be filled up before new plants are built.
But if you look at a five-year perspective, all these sectors are really attractive. Copper, nickel and some non-ferrous markets have less potential in India. Historically, 70% is steel, and 30% is the rest of the material. The quantum in steel is very big. Refractory utilisation is much higher because steel is more aggressive. And we don’t see this mix changing over the years.
THE GEOPOLITICAL QUESTION
How does the China + 1 discourse work for a niche player like you?
Our sector is super strategic. I have a lot of discussions with leaders from different raw material industries about the security of the supply chain. And it is not about China or not China. It is about how we build optionality in supply chains to reduce disruptions.
In last three-four years, there has been regionalisation. Materials and bricks that our customers use directly are less and less exported from one region to another. It is particularly pronounced in India. The supply chain risk goes down significantly with this.
The next step is raw material. This is particularly challenging because raw material is linked to geology. Luckily, we have resources in Brazil and Turkey to backward integrate Indian production into a second raw material source other than China.
But we will never cut off China. We have good reliable suppliers there. There is no indication that China wants to cut off the world. But it is a supply chain security issue. Turkey and Brazil are very good for magnesite-based raw materials. We do not have solutions for other categories. For some, there might be solutions inside India or countries adjacent to India to backward integrate production here. We are putting effort into mining in next two-five years.
How will geo-political developments affect the sector?
Ongoing geopolitical turmoil is terrible for the people affected. For global economy, there is no dramatic impact. The Russia-Ukraine war has an effect on energy cost in Europe. Outside that, there is not such a huge effect on the world. War in Israel is very local and doesn’t have a big effect on the global economy. That is one aspect. But you have these power struggles between China and U.S. which have a larger impact on the global economy.
You have plans to expand in China, Russia, Japan & Korea. What opportunities do these markets offer?
China is a significant market, and we have taken a good step forward there. Our scale in China is small compared with the size of the market. So, the potential is high. Then there are new Asian tigers such as Vietnam, Indonesia, Laos and Cambodia. The Middle East also has a lot of industries because of solar and investment prowess along with energy transition plans. From a geographical point of view, there are a lot of growth opportunities in these markets. Russia is a market we would like to enter, but currently, due to international conditions, it’s not possible.
What are your expansion plans in Asia? What is the investment in terms of quantum and sectors?
We have invested €200-300 million per year in acquisitions in last two years. We will go for a similar investment in next two years in these geographies. Product acquisition in some of our existing mature markets will also take place. In North America, we are very strong in steel but not in the non-steel segment. We will tap that opportunity. Eventually, we will shift from focus on acquisition to investment in areas such as recycling.
Are you planning any plant expansion and mining foray in India?
We have three mines — two quartz mines and one bauxite mine. In next three to four years, we will invest $30-40 million in India. Less than half will go into upgrade of existing facilities, capacity expansion, modernisation, robotics, productivity improvement and decarbonisation. A little more than half will go towards implementing the business circularity model; we will build a few recycling facilities. Third area is investment in capability building and upgrading our team. We have more than 7,300 people in this country. We have to continue increasing the knowledge of both workers and leaders.
We are also preparing for a substantial investment in information technology capabilities and business service capabilities, which we want to centralise in India, not only for the India business but for global operations. That is under preparation. In three years from now, we should have our major IT hub in India as a corporation. We will be moving it from Europe to here in next three years or so.