The magnesium industry needs to assure high levels of long-term supply to support sustained strong growth in consumption, according to a report by Roskill Information Services of London. "The long-awaited shift toward more widespread magnesium use by the automotive industry seems finally to have occurred, Roskill says. "But questions remain about expanding the supply base."

Western shipments of magnesium metal grew 5.5% annually throughout the 1990s, and most of this growth was driven by increased output of magnesium castings. However, China and Russia in recent years have exported significant amounts to the West, helping to fill the supply gap left by the 1998 shutdown of the Dow Magnesium plant in Texas.

At the same time, the shifting supply pattern has eroded the ability of Western producers to maintain a price for magnesium, resulting in a steady fall in the U.S. spot price from $2/lb at the beginning of 1996 to around $1.30/lb at the beginning of 2001.

Roskill notes that "while this period of low prices may have encouraged more widespread use of magnesium die castings, it also has inhibited investment in new projects." The only project likely to make a significant contribution to magnesium supply in the near future is Noranda's Magnola plant in Canada, which started commercial production of magnesium from asbestos tailings in January.

Chinese magnesium exports are expected to fall this year in response to a number of factors including uneconomic prices and increased environmental regulation. Upshot: "Sustained high levels of growth are vulnerable unless the supply base for magnesium is assured which, in turn, means that some of the proposed expansions and new projects will need to come on stream," Roskill says.

One way of achieving financing for new projects or expansions would be the direct involvement of automobile manufacturers, Roskill says, citing partnerships between Volkswagen and Israel's Dead Sea Magnesium and Ford Motor Co. and Australia's American Magnesium Plant. Another supply option is recycled material, which now accounts for 25% of total magnesium supply as more of the metal is used in die castings.

"The supply/demand balance for magnesium is still fragile. If demand continues at current rates the possibility, in the short term, is for supply shortages and rising prices. These, in turn, could reduce confidence in use of the metal in volume car manufacturing," Roskill says. So, "the industry still has to resolve the conundrum of establishing a secure supply base and providing a return for investors in new plants, while maintaining a competitive price for magnesium."