• Refractories are inorganic, nonmetallic, porous, and heterogeneous materials composed of thermally stable mineral aggregates, a binder phase, and additives. The principal raw materials used in the production of refractories are normally the oxides of silicon, aluminum, and magnesium. It is used as a primary material for internal linings in large industrial equipment for their safe, low maintenance, and cost-effective operations.
• Production of refractories in monetary terms in India was $2,602.6 Mn, in FY20 which increased to $2,810.1 Mn. in FY21, registering a growth of 8% year-on-year (y-o-y).
• The refractory market in India is dominated by 6-7 big players with IFGL Refractories holding the maximum market share of 43.9%.
• The market share in the refractory sector as on 31st March, 2021 in India is given below:

Key Trend:

• Freight Charges: Given several factors including disruption created by the pandemic, container availability for shipping purposes has become a severe problem and has led to exponential surge in sea freight rates for the RM sourced from China. This has affected all the refractory players increasing their freight cost, for both inwards and outward freight. It is expected that this issue to continue for at least one more quarter, which will suppress the margins of refractory players. As and when the refractory customers allow a pass on of the high RM cost, margin pressure is expected to ease again. 
• Localization: The Indian refractory industry is maximizing localization of products which was imported previously from either China or EU/USA. Products like Magnesia bricks, lances are now being manufactured in India through the technical expertise of MNC parent thereby reducing dependency on imports and also reducing cost. Import substitution strategy: Magnesia bricks are highly import dependent product mainly from China. In FY20, out of the total domestic demand of 300k tonnes, 75% of the bricks were imported by China (refer exhibit below). Therefore, there is a huge demand for locally manufactured magnesia bricks which are cheaper than imports from China, and hence, RHIM and Dalmia are expected to increase its capacity. Dalmia OCL Refractories, that is also setting up India’s largest Magnesia bricks plant with a capacity of 108k tonnes in 3 phases.

End user Industry Analysis:

• Refractories makes the material highly suitable for internal lining applications in the steel which accounts for about 75% of the end user market. Along with that, it is used majorly in manufacturing of cement and is suitable for internal lining applications in the aluminum, zinc, copper and in the manufacturing of glass. Hence it becomes imperative to discuss the current scenario of both the industries. 
• Steel Production: The production of steel in FY22 was 120 Mn. tonnes. As per National Steel Policy FY17, the government of India has set a target to ramp up steel production output in the country to 300 Mn. tonnes by FY30, with an expected CAGR of 12.14%.
• Steel Consumption: The consumption of steel in India between April 2021 and February 2022 stood at 86.3 Mn. tonnes. It is expected to increase to 230Mn. tonnes by FY31, with an expected CAGR of 11.51%
• Some of the main drivers of steel demand include :- 1) the National Infrastructure Pipeline with spending of Rs. 102 Tn in sectors like energy, urban and rural infrastructure, irrigation, railways, roads, etc.; 2) Jal Jeevan Mission - Rural and Urban which is expected to spend Rs. 6.5 Tn over the next 5 years; 3) PLI Schemes - It has an allocation of Rs. 1.97 Tn across 13 key sectors; 4) Vehicle Scrappage Policy; and 5) PMAY - Urban and Rural.
• As per Monarch Networth Capital, average expected revenue growth for refractory players to be at least 1.5 times growth in steel production. Therefore, revenue of refractory players is expected to grow by at least 21%, 12% and 9% for the next three years based on the steel production estimates.
• Cement Manufacturing: The cement industry in India is expected to grow by 12% in FY22 as against CAGR of 6% historical.
• Other factors, including the growing demand for non-ferrous metals, along with increasing utilization of aerospace, automotive, medical, electrical and construction castings, are projected to drive the refractories market in the future.

Peers:

• Some of the key players in the market include IFGL Refractories, Vesuvius India, RHI Magnesita India, Tata Krosaki Refractories, Calderys India, Saint-Gobain, RHI Magnesita, Corning Incorporated, Morgan Advanced Materials and Shinagawa Refractories.