Manganese ore prices have risen as much as 70% since early December but showed signs of faltering last week.

Metal Bulletin’s 37% manganese ore index, fob Port Elizabeth dropped 5 cents to $7.52 per dry metric tonne unit (dmtu) on Friday March 16, the first drop since February 23, after smelters launched aggressively low bids for material.

Meanwhile, Metal Bulletin’s 44% and 37% indices, cif Tianjin rose 15 cents to $8.78 per dmtu and 1 cent to $8.21 per dmtu respectively on March 16, despite an agreement among a number of Chinese manganese alloy smelters not to pay more than $8 per dmtu cif for low-grade ore.

With a standoff emerging between smelters - some of which have bid as low as $6 per dmtu for low-grade material - and miners - most of whom see prices stable above $8 per dmtu for the same material - nerves are frayed on both sides.

Manganese ore prices have been prone to sudden rallies and crashes since mid to late 2016 and much of the upside has been attributed to trader positioning and the growing popularity of Zhengzhou Commodity Exchange (ZCE) alloy futures prices, which often set the tone for the ore market.

Manganese alloy smelters have started warning that if ore prices continue rising while their own alloy prices continue to weaken, they will cut alloy production.

Metal Bulletin's price quotation for Chinese domestic silico-manganese dropped to 7,600-8,000 yuan ($1,199-1,262) per tonne on March 16, down from 7,950-8,200 yuan per tonne the previous week.

Manganese ore market participants have been predicting a downward price correction in ore prices since December. Some traders stopped taking positions at the time, predicting an imminent correction or crash. But four months on, no one can pin down the anticipated drop to a timeframe.

In December, most sources said the rally was driven purely by speculation in alloy futures and that a January-delivery date for a widely-traded ZCE silico-manganese contract would force enough parties out of their positions to prompt a correction in alloy prices, taking ore down too.

In January, market participants said Chinese New Year would being a natural end to the rally by winding down buying and prompting profit-taking among traders looking for holiday cash.

And all along, market sources had said prices would drop following a series of large shipments arriving from South Africa, after miners and producers there ramped up exports to take advantage of high prices.

But prices kept rising.

Some producers say watching all these factors come and go without incident showed them that the latest rally is stronger than several shorter bursts seen throughout 2017.

And that the continued strength of manganese ore prices despite a period of decline in silico-manganese futures prices shows the rally is driven by more than speculation.

“There have been all these reasons why the price should drop. Today we are moving into territory where all those reasons have gone. If it didn’t drop for any of those reasons, what does it say about today’s environment?” one market source told Metal Bulletin.

Another strong argument against a near-term price drop is the fact that traders have been taking physical positions in manganese ore at these recent high prices, knowing the market is approaching the highs seen in late 2016, which provoked a fierce crash.

“It is believed that traders are taking positions and have control of stock. Until recently, no trader had the ability to control stocks but if this changes, there could be some very severe price movements as they will want to make a margin of 20% at least,” a second market source told Metal Bulletin.

Most producers agree that to be taking positions on low-grade ore above $8 per dmtu, traders must be sufficiently confident that the rally has further to go, or that they can push it further. If so, this means the consumer boycott may have backfired if smelters are forced back into the market when traders have achieved their margin.

“There is a whole bunch of people sitting on high-priced material and they have a certain view. Otherwise, surely they would not buy but they would drive the market down to try to get a better price,” the first market source told Metal Bulletin.

That is another theory; some market participants believe there are other entities hoping to crash prices to create opportunities to buy at bargain prices then earn huge profits driving prices back up in a similar pattern to the rally of autumn 2016.

More generally, there is always the possibility that a party with material will take profits suddenly by liquidating a position.

With delegates gathering in Hong Kong for Metal Bulletin’s 19th Asian Ferroalloys Conference on March 20-22, they will be hoping for better indications about price direction.

There should be clues about how serious smelters are about cost-related cutbacks.

Less manganese alloy supply does not always mean lower ore prices. Supply cuts can lead to higher ore prices if alloy futures prices rise in response to tightness and the ore market follows the futures prices instead of the physical market.

If there are cutbacks, the ore market’s response this time will answer one question; whether manganese ore prices remain speculatively driven or whether market dynamics have moved on.