ASIAN FERRO-ALLOYS CONF: What does China’s low manganese ore inventory mean?

Manganese ore inventories in Chinese ports have dropped 50% since April 2017 despite higher imports and almost unchanged silico-manganese production in 2017, according to Metal Bulletin data; Metal Bulletin asks why during the 19th Asian Ferro-Alloys Conference held in Hong Kong.

Manganese ore port inventories have long been a key indicator of market fundamentals in China. Manganese ore inventories in Chinese ports dropped to 1.6-1.7 million tonnes in January this year, compared with 3-3.1 million tonnes when data collection was launched on April 5, 2017.

What happened?
China’s manganese ore imports increased 24.64% year on year to 21.26 million tonnes in 2017, while manganese ore inventories at China’s Tianjin and Qinzhou ports stood at a historic low of 1.6-1.7 million tonnes on January 24, 2018.

“Although imports increased almost 25%, our data shows China’s 2017 silico-manganese production is almost level with the production in 2016, ” a major manganese ore importer based in Shanghai said.

“In 2017, China produced 7.04 million tonnes of silico-manganese alloys, 0.22 million or 3% lower than the 7.26 million tonnes of silico-manganese alloys China produced in 2016,” the importer added.

So with more manganese ore imports but slightly lower manganese alloy production, why have the Tianjin and Qinzhou manganese inventories been at a historic low during the first quarter of 2018?

Why is manganese ore inventory so low?
Chinese market participants attributed the low inventory level to the lower manganese content in ores, good profits in manganese ore trading in 2017 and more buying interest in overseas seaborne ores markets, due to soaring domestic manganese ore prices.

Lower quality manganese ore in 2017 has meant silico-manganese production consumed more manganese ore imports.

“The manganese ore content was lower than before, some of the ores’ manganese ore grade is 2% lower than the manganese content in previous years,” the Shanghai-based importer told Metal Bulletin.

“The manganese ore imports from South Africa since 2017 are not as good quality as previous years. Some lower grade ores came into market, while the imports from Malaysia were also not so good and have impurities,” a Beijing-based major manganese ore trader said.

Moreover, manganese ore has been at elevated levels since March 2017, after falling in the first-quarter 2017, which boosted Chinese traders’ speculative buying interest as well as silico-manganese producers’ reserve stocks interest.

Metal Bulletin’s 37% manganese ore index, fob Port Elizabeth stood at $5.80 per dry metric tonne unit (dmtu) on Friday January 5, 2017, 160% higher than $2.23 per dmtu assessed on March 10.

In the first quarter of 2018, Metal Bulletin’s 37% manganese ore index continued rising, soaring to $7.52 per dmtu as of March 16 compared with $2.23 per dmtu on January 5, 2018.

Metal Bulletin’s 44% manganese ore index, cif Tianjin stood at $8.78 per dmtu as of Friday March 16, 118% higher compared with $4.02 per dmtu on March 17, 2017.

“A high price is the best way to stimulate buying interest,” a Tianjin-based manganese ore trader said.

“Silico-manganese producers reserved less than one week of manganese ore stocks in 2015 when manganese ore prices were down, while the Tianjin and Qinzhou ports’ inventories were high because they could purchase spot cargoes directly from ports on a yuan basis,” the Tianjin-based trader said.

“[Yet] the positive outlook for manganese ore prices in 2017 has meant silico-manganese producers reserved one-month of manganese ores at their facility,” the same trader added.

This means manganese ore inventory is sitting in manganese alloys’ factories as raw material stocks, rather than in ports.

“Speculative buying interest will increase because everyone knows that it’s good business once you’ve booked your ores” a second manganese ore trader based in Beijing said.

The profits made from Chinese rebar and crude steel in 2017 were pumped into buying silico-manganese alloys, further supporting the strong manganese ore prices in 2017.

Will the low inventory continue?
Metal Bulletin assessed manganese ore inventories in Tianjin and Qinzhou ports at 2-2.1 million tonnes on Wednesday March 21, almost flat with 2-2.05 million tonnes two weeks ago, but 24% higher than the historic low of 1.6-1.7 million tonnes on January 24.

“Looking ahead, manganese port inventories are expected to rise, which will pressure current manganese ore prices down,” several conference delegates at the Asian ferro-alloys conference said.

In January 2018 manganese ore imports surged to 2.1 million tonnes, almost two times the 1.1 million tonnes imported a year prior, according to Chinese customs data.

“Miners from Australia, the US, Vietnam, Malaysia, Indonesia and Japan have also been pushing their manganese ore to the market very strongly,” a buyer from a silico-manganese factory said.

“The market needs time to recalibrate because the current prices are too high for end-users to accept,” a ferro-manganese producer said.

Some conference delegates, however, argued that they still have a very positive outlook on manganese ore consumption in China and for manganese ore prices, which would keep manganese ore inventory at low levels.

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