Latrobe Magnesium to increase plant output for high demand US market

Latrobe Magnesium (ASX: LMG) has made a strategic decision to supply all of the product from its demonstration and commercial plants to a hungry US market.

The company has also elected to increase its offtake of magnesium from the two plants by 20%.

The move comes as imports of magnesium metals into the US leapt by 203% in the first quarter of 2023.

Chief executive officer, David Paterson, said the significant changes follow the signing of an amendment to Latrobe’s exclusive agreement with Metal Exchange Corporation (MEC) for the distribution of magnesium into North, Central and South America and the Caribbean markets.

New agreement

The new agreement will see an extra 200 tonnes per annum of production from its Victorian demonstration plant sent to the US market, while the company will ship an extra 2,000 tonnes per annum of magnesium from its commercial plant production there.

The new arrangements are expected to provide Latrobe with the generation of an additional $1 million in sales from the demonstration plant, while an extra $10 million will come from the company’s commercial plant.

The additional 200 and 2,000 tonnes per annum volumes secured by MEC for its US operations was previously allocated to the Japanese market.

LMG’s Japanese magnesium exports will now be deferred until the commissioning of the company’s 100,000 tonnes per annum Stage 3 project in Sarawak, Malaysia.

US demand running hot

For Latrobe it was an easy decision to elect to sell all its Latrobe production into the US market owing to the higher market pricing for magnesium there.

North and Central America consume more than 160,000 tonnes of magnesium per annum and this is projected to increase with greater use of magnesium by the local motor vehicle industry.

At present, there is only one magnesium producer in the USA and it is currently undergoing a capital refurbishment and has been mostly out of commission since 2021.

According to the US Geological Service (USGS), magnesium export demand in the US has climbed dramatically on the back of lower domestic production and the late April 2023 decision by the US International Trade Commission to renew antidumping duty on pure magnesium imported from China.

The antidumping duty rate of 108.26% was first imposed in 1995 and has been renewed in four prior sunset reviews.

China still a major supplier

Despite the antidumping duty, China supplied more than 4,000 tonnes of magnesium in 2022 and 538 tonnes in the first quarter of 2023 amid shortages caused by the decreased local production.

Australia is not currently a significant magnesium importer into the US, with 25% of first quarter imports coming from Czechia, the Republic of Korea (19%), and Canada (15%).

Under the US-Australia free trade agreement, magnesium produced in Australia is exempt from any import duty.

Initial production plans still in place

Mr Paterson said all remaining features of the agreement with MEC remain in place, including a guarantee of a minimum initial term with a rolling annual renewal and a minimum floor price for the purchase of the magnesium.

However, a recently announced 6 months delay in moving to full production at the demonstration plant has led to the expected delivery of the 10,000 tonnes per annum plant also being pushed back and it now not expected to kick-off full operations until December 2025.

Latrobe’s demonstration plant will test the commercial potential of the company’s world first and patented extraction process for the removal and sale of magnesium metal and cementitious material from industrial fly ash.

The technology has the potential to create significant profits while answering an environmental issue as the fly ash is currently a waste resource from the nearby Yallourn brown coal power generation plant.