Document NErrayJ35ko94n43ddBEmbZNy

ASBESTOS - INDUSTRY REVIEW REMARKS BY J. D. Little President and Chief Executive Officer Brinco Mining Limited CANADA-JAPAN BUSINESSMEN'S CONFERENCE VANCOUVER, BRITISH COLUMBIA MAY 18 - 20, 1931 i CAPCO JEN 0012147 BACKGROUND The Asbestos Industry is very important to Canada as an industrial mineral. It is relatively small and unknown when compared with the non-ferrous metals of primary interest. The industry in total produces and markets worldwide approximately 5.5 million tons of fibre at a total value of U.S. $2.5 billion. In order to comprehend this unique industry, background information is being provided as a foundation for further discussion. (i) Characteristics Since Asbestos is a natural fibre, each mine's production shows significantly different lengths, chemical content and structural properties, all of which the customer considers. The grading system developed by the Quebec Asbestos Mining Association (QAMA) is the most cannon in use, and is based upon fibre length. (Figure 1). The long, valuable fibres. Crudes No. 1 and 2 and group 3 are used in the textile industry as electrical insulation, for heat protection, and as a filtration medium. Medium length fibres, groups 4,5 and 6 are used as reinforcing in asbestos-cement products, in friction materials such as brake linings, clutch facings, and gasket materials-and in asbestos paper. Short fibres, groups 7, 8 and 9 are used as fillers in plastics, floor tile, oil-well mods and paints. (Table 1). Although there are hundreds of uses, on a worldwide basis over 70% of the fibre is used in ccnstructicn materials such as asbestoscement sheets and pipe. (ii) Pricing Prices vary frcm $2,000 Cdn. per short ten for grade 3 fibre to $128 Cdn. per short ton for grade 7. (Table 2). The complex variation between fibres results in pricing that is very specific to a given mine. Asbestos Corporation and Johns-Manville are regarded as the price leaders, issuing prices in the fall of each year quoted F.O.B. mine. .../2 CAPCO JEN 0012148 -2 Asbestos prices had a history of considerable stability. Eetween 1956 and 1967', the average price rose only 13.5% or approximately 1.2% per year, frcm $90 U.S. per short ton to $102 per short ton. From 1967 until 1974 a 20% (2.8% per year) price increase took place. At this tine high price increases were experienced as a readjustment, since the average annual price of asbestos in constant money terms had actually been declining since 1954. (Table 3). During 1974, market.conditions allowed prices to be increased three times in one year. Prices continued to rise to keep pace with costs, however poor textile fibre demand in 1977 necessitated a 10% decrease in grade 3 fibre price. The strong market for cement grades continued, with subsequent price increases slightly above the prevailing inflationary rates. (Figure 2). The principal competitors of asbestos-cement are ductile iron, plastic (FVC) and metal products. Since these carpetitive products are expected to experience cost pressures related to material and energy costs, the price of asbestos can rise approximately 2.5% per year in constant dollars to maintain its price competitiveness. The Western 31oc fibre suppliers will be facing increasing price pressures. Russian fibre, entering the market in order to develop a source of foreign exchange, is being offered at reduced prices. However, prices do not necessarily need to decline, since the Ccmacon Bloc cannot sell all it wants in the short term.- Neither the quality nor the delivery of the Russian fibre has been consistent, and inter national buyers will still wish to maintain a dual supply. PRCDCCTICN (i) World Production World production has increased fivefold over the past 30 years to over 5,500,000 short tans. (Figure 3). Canada has consistently been the principal Western producer, although its share of world production has decreased from 63% to approximately 25%. The U.S.S.R. is the principal producer with 50% of world production. South Africa 10%, and the remainder divided between Zimbabwe, Italy, China, U.S.A., Australia and others. (Figure 4). Chrysotile fibre accounts for 90% of world production, with the remaining production consisting of 6% crocidolite (blue asbestos) and 3% amosite. Less than 1% of other types of asbestos (tremolite, anthophyllite) is produced, mainly in the United States. .../3 CAPCO JEN 0012149 -3- The world's leading asbestos-producing organizations are led by the Uralasbest Carbine in the U.S.S.R. with a capacity of 1,500,000 metric tons per year. Johns-Manville Canada Inc. is the western world's largest asbestos producer, with a'645,000 metric ton capacity. (Table 4). - f4cst of the annual output from the U.S^S.R. is consumed domestically, although 600,000 tonnes are exported mainly to eastern European countries, Japan, France, West Germany and India. The world growth in fibre production has been fairly linear from 1955 to 1972 (Figure 3)t growing at about 4.3% per year. The fibre growth during this period approximated the growth in constant dollar capital formation as estimated by the United Nations. In 1973 shipments rose sharply, approximately 10%, and mine inventories declined. The year 1974, however, was crucial. _ Eecausa of the worldwide recession brought on by the oil embargo and the rising costs of energy, world production of fibre declined as world fixed capital formation decreased. In December 1974, a fire at the Asbestos Corporation King Beaver Mine significantly impacted the Canadian industry in 1975. That year the continued world recession, a major cave-in at the Johns-Manville Jeffrey Mine and prolonged strikes in Eastern Canada combined to constrict supply, and price increases took place. The Canadian and world asbestos industry rebounded in 1976 to almost 1973 production levels, as manufacturers built inventories to avoid the shortages of 1975. Further adjustments took place in 1977- and 1973. The closure of the Clinton mine (100,000 metric tons/ year) in 1973 reduced overall Canadian shipments for this year, however 1979 and 1980 showed production increases. 4 The Canadian asbestos producers and prospective properties are listed in Table 5. The production for Canada in the past few years is listed in Table 6. (ii) New Production and Expansions The Ccmecon countries are assisting in the completion of a project at the new Kiembay deposit in the southern Urals. It is designed to produce 550,000 tonnes per year of asbestos, which will be absorbed by the Ccmecon countries. In Greece, the new Zidani Asbestos Mine is reaching its final stages before production. With an estimated life of 25 years, and a production capacity of 100,000 tonnes per year, 20% of this output will in utilized in Greece. The remainder is to be exported primarily to the Mediterranean, Far-Eastern and European markets. .. ./4 CAPCO JEN 0012150 -4 - A new mill in Zimbabwe, is expected to provide greater efficiency and capacity for expansion when fully operational. Other projects in various stages of development are underway in Brazil, Mexico, Bolivia, Colombia and Yugoslavia, as well as Canada. (iv) Present Trends In the early 1980's, an oversupply in group 4 fibre is expected because of depressed conditions. Canadian inventories are already at high levels. The QAMA estimates that their association inventories were 113,800 metric tons of fibre in January 1980, however by year-end; inventories had increased 6.6% to 121,300 metric tens. Because of the high inventories the Asbestos Corporation Limited (ACL) Normandie mine was closed between mid December, 1980 and February 1, 1981. Two other ACL mines remained closed until the end of February, attended summer shut downs and reduced work weeks are being contemplated by other producers to correct the supply-demand imbalance and reduce inventories. ' (v) Canadian Shipments Canadian asbestos shipments for 1980 amounted to 1,202,511 metric tons. Shipments by group categories (textile, asbestos-cement, fillers) can be found in Figure 5. Europe is still the primary textile grade user, although Asia has greatly expanded its influence because of lower labour costs. The United States is still the second largest consumer of Canadian group 3 fibre. In the group 4 and 5 fibres, Europe consumes 46% of Canadian shipments. Asbestos cement is still a major, reliable product in the construction industry, especially in the price sensitive agricultural sector. In the groups 6 to 9, the short length filler grades, the United States is the primary consumer of 46% of Canadian shipments, followed by Europe (22%), Asia (21%) and Central and South America (8%). Canadian shipments to Japan for 1979 and 1980 are compared in Figure 6. Shipments for all groups except group 6 fibre increased' between 1979 and 1980, however total shipments to Japan decreased from 126,052 metric tons to 125,442 metric tons. Canada supplied . 40.9% of Japan's fibre requirements in 1980 versus 43.1% in 1979. . Table 7 shews Canadian tonnage shipped to Japan over the past 6 years'. .../5 CAPCO JEN 0012151 -5- CONSUMPTION Since asbestos is not recycled and stockpiling is kept to a minimum by the industry, annual world consumption of asbestos tends to be approximately the same as annual world production. Apparent consumption of asbestos by region can be found in Table 8. The principal uses for asbestos are asbestos-cement (AC) construction materials, floor tiles, paper and friction products. The QAMA estimates that worldwide 70% of asbestos is used in AC applications, and it is the primary use of asbestos in the developing world countries. (Table 9). (i) Demand Forecasts - by Pagion North America Consumption of all grades of fibre has traditionally averaged around 750,000 metric tens per annum. In 1980 consumption declined to below 550,000 metric tons, with, no improvement expected in the current year. The decline is a result of both the recession in the automotive and building sectors, and the permanent reduction in the use of asbestos in certain applications (flooring, AC pipe, felts) because of anti asbestos sentiment. Eurcce Severe downturns in Scandinavia and the United Kingdom because of anti-asbestos legislation will continue, with an expected reduction in consumption in Germany, Franca and Italy. Consumption of asbestos will fall to 350,000 metric tens frem the normal level of 1,000,000netric tens. Central America A further rise in demand is expected particularly for Mexico as government projects expand in the irrigation and housing areas. Consumption of fibre is expected'around the 85,000 metric ton level for this region. South America Increasing consumption in South America,- principally in Brazil will raise consumption to approximately 250,000 metric tons in 1981. Brazilian consumption, however, is directly linked to their own production of 150,000 metric tons per year at recently expanded facilities. .. ./6 CAP CO JEN 0012152 -6- Africa This region at present is not of major significance in world consumption, however consumption has grown to the 120,000 metric ton level. Reduced activity for 1981 in Algeria and Egypt should be offset by the stronger performance of South Africa and Nigeria, and forecast consumption is still 120,000 metric tons. Asia Although performance in this region has been excellent, the prolonged world recession is expected to reduce consumption in Japan and South Korea. Growth in India is continuing, with Increased asbestoscement capacity in Malaysia, Indonesia, and the Philippines. Overall consumption should be approximately 530,000 tonnes. Middle East During 1980, demand has been poor from this region principally because of problems in'Iran, once a major producer of asbestos cement products. High stock levels in other countries are being reduced, and demand should not exceed 85,000 tonnes. Oceania Demand level is steady at 80,000 metric tens per annum, in Australia and New Zealand. Eastern 3 Shortage of foreign exchange, and increased availability of Russian fibre will decrease imports from the free world to 350,000 metric tens for 1981. OVERALL CONSUMPTION AND GROWTH Demand level for 1981 for Groups 1-5 should reach 1,460,000 tonnes. This compares unfavourably with the average level of 1,700,000 tonnes per annum achieved in the period 1976 - 1979. In most parts of the world, asbestos cement products are well known, accepted and provide desired properties at modest cost. The capital intensity end energy requirements of their manufacture is relatively lew and thus the market outlook is good, particularly in developing countries. Growth in real terms over the next 20 years is predicted in Table 10. .../7 4 CAPCO JEN 0012153 -7- JAPANESE CCNSEMPTICN In 1980 Japan imported approximately 300,000 metric tons of asbestos fibre, still below their maxintum in 1974. Japanese imports bv vear and by country of origin are shown in Figure 7. The usage pattern in Japan is as follows: ` Asbestos Cement Sheets Friction Materials Textile Materials Asbestos Cement Pipes Others (Papers, Felts, Fillers) 65% 7% 3% 2% 23% 100% Asbestos sheet production in 1979 was over 87 million sheets, while tonnages of other major products are listed in Table 11. JAPANESE MARKET OVERVIEW Normal inventory levels are 2 to 3 months, however for several reasons inventories have increased to a 4 to 5 month stock. The asbestos cement industry is depressed with housing starts declining from a normal level of 1,500,000 units to 1,200,000 units. The automotive market is also affected by the general market recession, thereby reducing the need for asbestos in the friction materials area. In the textile sector, primarily in the SENNAN district, asbestos consumption is -steady. An eventual rationalization of the industry may take place as the Japanese government enforces the accepted fibre minimum standards on smaller manufacturers. While the Western countries place great importance on the tension or strength of asbestos fibres, the Japanese emphasize a finished product that has good colour, luster, and overall appearance. However, they are also very price conscious and all these influences are incorporated into their buying procedures. Disruptions in the Japanese market have, resulted from Russian producers supplying fibre at very attractive prices, however the quality and supply has been inconsistent. . .../3 CAPCO JEN 0012154 ISSUES Or CCNCESN (i) Health and Asbestos The health problems regarding asbestos is a well publicized issue for many reasons, both factual and political. Dr. Selikoff of the frjount Sinai School of Medicine, one of the first to find a link between asbestos and lung cancer, mesothelio.na, or astestcsis in high exposure situations, has stated that there is no evidence that the general public is exposed to health risks from asbestos. Bans, however, have been effective for certain uses of asbestos, and have greatly influenced the Scandinavian market. Asbestos appears to promote, rather than cause lung cancer ar.d acts as a co-carcinogen. Law suits against American, British and Canadian producers of asbestos and asbestos-based products continue to be filed in the United States. Many of these suits, however, originate as a result of conditions over 20 years ago, and the industry has certainly changed since that time. In. Canada, federal emission regulations require that the concentration of asbestos fibres contained in emissions to the ambient air must be lower than two fibres per cubic centimetre. Investments in envircrmental control by Canadian producers has reached millions of dollars. Labelling of asbestos products is also being introduced in many countries. (ii) ?.eplacemant Products Because of the related health problems, many users of asbestos are developing products with substitute materials. Glass fibers can be used in certain applications, as can carbon fibers. The use of FV'C and iron pipe, and also other industrial minerals such as gypsum, magnesium and calcium instead of asbestos cement will continue in certain areas of the world which are environmentally oversensitive. . (iii) Quebec Government Involvement The Quebec government passed on May 25, 1978, Bill 70 to establish the Societe naticnale ce L'amiante (SNA). This law is expected to allow SNA to purchase from General Dynamics corporation of St. Louis, Missouri, its- 54.6% holding in Asbestos Corporation Limited (ACL), the second largest asbestos producer in Canada. ,../9 CAP CO JEN 0012155 i -9 - Bill 121, to enable the Quebec government to expropriate some of the assets of ACL was passed, providing for an arbitration committee if a sale price could not be agreed upon.within two months of a notice of expropriation. Representatives for the Quebec government arrived at an*evaluation of approximately $42.00 a share for ACL, whereas consultants for General Dynamics placed the share valuation at $100.00 per share. The final outcome also depends to a large extent on whether the Parti Quebecois remains in power. Apart from negotiations with Asbestos Corporation Ltd., the Quebec government in mid 1980 purchased the Canadian interests of Turner and Kewall Ltd. (Manchester, England). For the sum of $35.5 million, the SMA obtained Sell Asbestos Mines Ltd., of Thetford Mines, Atlas Turner Inc., Montreal, and its sister company Turners 3uilding Products Ltd., Mission, British Columbia. The latter two are manufacturing companies producing asbestos-cement pipes and building materials. The purchase was primarily a financial decision rather than political, since Turner and Newall was looking for an interested buyer. The Quebec government, however, has stated that the purchase will not affect its attempts to expropriate the assets of Asbestos Corporation Ltd. summary The asbestos industry, although threatened'by substitute products, health concerns, economic pressures ar.d political undercurrents will continue. Used properly, Asbestos in the years to. coma will remain an essential ingredient in safety products and specialty applications that provide for our improved way of life. / ' CAPCO JEN 0012156 Figure 1 Asbestos fibre lengths (mm) : No 3 Mo. 4.5 No.6,7(Iess (han 3mm) No.1 Crude (greater than 19 mm) No.2 Crude Quebec chrysotile n H.H80.M WDS.MS S. SS0.25.L.L8 C.A South African crocidolite Oil (avg.J 4- \ IS22.SK )S11 |K3 S33.S33/65 55C5 GK. 544.RK South African Gmosite i 0 10 20 30 40 Asbestos fibre length.(mm) CAPCO JEN 0012157 Fiaure 2 Asbestos Fibre Prices 1970-1901 (Cassiar Resources Ltd i CAPCO JEN 0012158 Year FlCL'nC 3 ASBESTOS PRODUCTION AND FIXED CAPITAL FORMATION little* ol Fixed C|iita1 rorniatlun (I9CS I 0 H0 ) TIioiivjihI S liofi Torn 1053 1056 I9G7 1SES 1969 1970 1971 1972 197] 197J 1979 I97S 1977 1973 Figure 4 ASBESTOS APPARENT WORLD CONSUMPTION 1977 ASBESTOS WORLD PRODUCTION 1977 tOMwHie i.i't *ir i CAPCO JEN 0012159 Figure 5 - C anadian Asbestos Shipm ents (1 9 0 0 ) O 0} CAPCO JEN 0012160 Eastern Bloc Middle East & Africa Figure 6 - Total Canadian Shipments to Japan (1979,1980 ) mtons CAPCO JEN 0012161 nitons YEAR CAPCO JEN 0012162 Table 1 : applications for chrysotile fibres, by grade Grade/description Length specifications Uses Iona fibre Ho. 1 crude Ho. 2 crude Ho. 3 spinning fibre 19 rai + 9.S-19 cm 6-9.5 ron Medium fibr? No* 4 asbestos cement fibre 2-5 mm Ho. S paper fibre Ho. o paper-shingle fibre -3 on Short fibre Ho. 7 shorts Ho. 3 -3 ra By weight Verv Short fibre Ho. 9 By weight Fireproof textiles Fireproof textiles and insulation materials. Fireproof textiles, packing, woven brake linings, clutch-facings, electric, high-pressure, and marine insulation. Asbestos-cement products. Asbestos-cement products, low-pressure asbestos cement pipe, moulded products, paper products, brake linings and caskets. Asbestos-cement products, brake.linings and gaskets, plaster, backing for vinyl flooring sheets. Moulded brake linings and dutch facings, plastics. Mostly "shorts' used as a filler in vinyl and asphalt floor tiles, other asphalt compounds and caulking compounds, paints and drilling mud additives. Contains much rock and generally used for rock . ballast, asphalt paving aggregate, and land fill. Source: Australian'Minerals no. 30, 1977, quoting Energy Hines and Kescurces Canada. CAPCO JEN 0012163 TABLE 2 1 Canadian asbestos prices quoted in "Asbestos" Quebec, fob nines Group No. 3 (spinning fibre) No. 4 (asbestos-cement fibre) No. 5 (paper fibre) No. 6 (waste, stucco, plaster) No. 7 (refuse, shorts) Jan. 1, 1991 ($ per short ten) 1230 - 1995 876 - 1256 572 - 676 420 - 332 128 - 244 Cassiar, fob North Vancouver, B.C. Canadian croup No. 3 (nenferrous spinning fibre) AAA grade AA grade A grade AC grade No. 4 AK grade No. 4 AS grade No. 5 AX grade No. 5 AY grade No. 6 AZ grade 2000 1600 1265 1155 1075 1000 930 660 430 Asbestos is oublished rnonthlv bv Stcver Pubiishir.c Ccnoanv. CAPCO JEN 0012164. Table 3 USA: Averace annual.price for asbestos (S per sh.ton)1956-1976 Year 1956 1957 1958 1959 1960 1961 1952 1963 1964 1965 1966 1957 1968 1969 1970 1971 1972 1973 1974 1975 1975 - Actual price fUSS) 89.78 88.09 90.50 91.17 94.62 95.60 94.85 92.44 98.70 97.92 ' 100.63 101.91 98.93 110.03 115.64 117.54 115.63 122.22 122.27 144.14 206.31 Constant 1975 USS 181.63 172.38 174.34 171.83 175.35 175.61 171.09 164.31 172.73 167.67 166.82 164.11 152.46 161.46 161.06 155.76 148.42 147.01 133.65 144.14 197.56 Source: US 3ureau of Hines Mineral Commodity Profiles, Asbestos, September 1977. Table 4: Vlorld: leading asbestos-producing organizations Orcanization/ccmoany Uralasbest Dzhetygara Johns-Hanvilie Canada Inc. Asbestos Corporation Limited Lac d'Amiante du Quebec Ltee Mine locations) Urals, USSR Kazakhstan, USSR Quebec, Canada Quebec, Canada' Quebec, Canada Capacity (toy) 1,540,000 710,000 645.000 260.000 235,000 i CAPr.n .ifm nrioie: Table 5 Canadian asbestos producers and prospective producers. 1978. Producers Advocate Mincv Limited Circy-Cmadian Mines Ltd. Ashe\to% Corporation Limited Asbestos Hill mine Mine Location Date Vcrtc. NHd. East Broughton. Que. Putuniq.Que. Mill Capacity (tonnes! ore/day fibre/year A 800 5 000 3 400 80 000 210 000 90 000 British Canadian mine Kinc-Bcavcrmine Normandie mtne Beil Asbestos Mines. Ltd. Lake Asbestos of Quebec. Ltd. National Mines Division Johnv-Manviilc Canada Inc. Jeffery mine United Asbestos fnc. Casstar Avbc<tos Corporation Limited Cavsiarmine Clinton mine Black Lake. Que. Thetford Stines. Que. Black Lake. Que. Thetford Mines. Que. Blaek Lake. Que. Thetford Mines. Que. Asbestos. Que. Matachewan. Ont. Cawiar. B.C. Clinton Creek. Yukon It 200 \ > 210 000 A 800 J 2 700 35 000 8 200 | 23JOOO 3 200 30 000 &4J000 3 600 100 000 3 000 3 600 100 000 + 100 000+ Prospective Producers Abittbi AsbcMos Mining Company Limited MeAdam Mining Corporation Limited Cisi/ar Asbestos Corporution Ltd. Amos. Que. Chiboucamau. Que. Dcase Lake. B.C. 1J800 4 500 Remarks Open pit. Produce* groups a and 6. Open pit. Mainly produces groups 6 and 7, World's major independent asbestos producer. Annual rated capacity 272 000 tonnes concentrate. Final processing of fibre in West Germany. Open ptt. two milling plants. Underground and open pit. Reserves exhausted. Mill processes K-B open-pit ore. Underground. Open pit. Open pit. Open pit (western world's largest known asbestos deposit) Inactive. Open pit. Open pit. Dosed in August after depletion of reserves. .Feasibility study underway. Feasibility study underway. Possible future development. Sources: Mineral Poliey Seensr. Department of line;;/. Mines jnd Resources. Ottawa; Quebec Asbestos Mining Association. QueSx. TABLE 6 1980 1979 1973 1977 CANADIAN PRODUCTICN AND VALUE S TONS 1,210,575 ^ 1,650,000 1,522,000 1,517,000 VALUE ($CDN $626,502,305 `$654,584,000 $601,631,000 $563,000,000 CAPCO JEN 0010166 TA13LE 7 CAPCO JEN 0012167 Table 8 World: Acparent consumption of asbestos by region 1977 Canada EEC Japan USA USSR Others Total t 65,545 722,095 306,343 612,687 2,199,108 1,564,539 5,470,417 % total 1.2 13.2 5.6 11.2 40.2 28.5 1C0.0 Source: Canadian Minerals Yearbook 1973, Department of Energy Mines and Resources. Table 9 AC sheets AC roofing materials AC pipe Friction materials Papers and felts Floor tiles Paints and coatings Textiles Plastics Insulation Packings*and gaskets Others incl non-AC roofing materials Total 1 aDolica tion USA*1) 1.9 ) 11.7 ) 38.0 ) 10.9 0.2 21.5 3.5 1.0 0.5 2.7 3.4 4.5 1C0.Q World^ 69.0 2.2 7.4 3.9 1.6 0.7 0.5 0.3 1.0 13.4 ...... . 100.0 . Sources: (1) US Bureau of Hines, Mineral Industry Surveys, Asbestos in 1979. (2) Northern Miner, 24 November 1977, quoting QAMA. CAPCO JEN 0012168 TABLE 10 GROWTH IN REAL TERMS IN NEXT 20 YEARS Asbestos-Cement Producers Friction Products Tiles Plastics Pacer Products Textiles Developed Countries 1% to 2% 0% . -4% to -5% 1% .-5% to -7% Developing Countries 6% to 8% 6% to -1% -1% to -2% 4% to 5% -1% Ccmecon Countries 5% to 7% 0% to 1% -2% to -3% 2% to 3% -1% TABLE 11 JAPANESE ASBESTOS PrODCCrS PRODUCTION (1979) A-sbsstos Pipe Cloth, Yarn Joint Sheet Brake Lining Insulation 36,361 Tons 6,930 Tons 12,816 Tons 24,754 Tons 13,426 Tons CAP CO JEN 0012169