FOCUS: Closure of automotive plants puts pressure on Chinese silicon, magnesium exports

Export prices for silicon and magnesium in China have declined amid growing concerns that suspensions of production announced by automakers abroad in response to the novel coronavirus (2019-nCoV) outbreak would reduce demand for these alloying materials.

Automakers have announced suspensions for their manufacturing plants in Europe, North America, South America, as well as parts of Asia in recent weeks.

Fastmarkets assessed the price of silicon export 98.5% Si min, fob China at $1,520-1,620 per tonne on Friday March 20, down by $10-20 per tonne from a week earlier.

Export prices have been trending downward since the beginning of March and market sources expect the downtrend to persist as a result of a foreseeable drop in overseas demand caused by the closure of car manufacturing facilities around the world.

Silicon grade 553 is the feedstock for secondary aluminium alloy (ADC12), which is used to produce automobile parts.

“Export and domestic markets are almost frozen. I haven’t received any overseas inquiries for weeks. Domestic traders and downstream plants are also reluctant to purchase during such a rough time,” a trader said.

“Automotive facilities’ shutdowns in overseas market only make us more pessimistic about the silicon market in 2020.”

A second trader said he was not expecting the export market to see any activity anytime soon.

Whether exports improve will depend on the ability of countries to contain the spread of the coronavirus, he said.

“It took China more than a month to turn it around and its domestic industries have yet to fully recover. I hope the situation in other countries could return to normal as soon as possible,” the second trader said.

China exports more than half of the magnesium it produces each year, and Europe is typically a major buyer, market sources told Fastmarkets.

As such, the increasing number of automotive plants in Europe being suspended to limit the spread of the coronavirus has left them concerned over magnesium exports.

Magnesium alloys, due to their high specific strength, are used in the automotive sector to make lighter vehicles.

Fastmarkets weekly price assessment for magnesium 99.8% Mg min, fob China main ports was $2,030-2,060 per tonne on Friday March 20, down widening downward by $20 per tonne from a week earlier.

“I’ve lowered my export price in the hope of facilitating trade in such a quiet market. The closure of automotive plants in Europe and America makes the situation even worse. The [magnesium] industry will have a hard time this year,” a third trader said.

A fourth trader concurred.

“I’m bearish about export prices for magnesium. I expect overseas demand for the material to drop because end users will only conduct purchases on an as-needed basis to control costs amid a global economic slowdown even when the virus comes under control,” the trader said.

“I’ve only been arranging shipments for export contracts concluded previously. I’ve not signed any new [export] contracts in the past week,” the fourth trader added.

Market sources told Fastmarkets last Friday that Chinese exporters had delivered magnesium in recent days for contracts signed in late February, which drove up demand for the material and boosted its price in the domestic market.

Fastmarkets assessed the price of magnesium 99%, exw China at 13,800-14,000 yuan ($1,944-1,972) per tonne last Friday, up by 100-200 yuan per tonne from a week earlier.

But the sources considered the increase as temporary and are expecting prices to fall again in the absence of any signs of robust demand from domestic aluminium plants downstream.

Chinese concerns
Chinese market participants have started to worry about a possible shift in the global supply chain once the coronavirus pandemic comes under control.

Border closures, logistical restrictions and other challenges encountered in the course of sourcing for raw materials from other countries during the pandemic have made market participants realize just how fragile the supply chain is when a downstream end user only depends on a handful of sources.

A fifth trader told Fastmarkets that buyers in the European market might rethink their source for silicon and increase the production capacity of the material at plants in the region once the crisis blows over.

Similarly, sources in the magnesium segment have similar thoughts about markets cutting their reliance on imports once the coronavirus comes under control.

“I could only imagine that the export of raw materials would become more difficult once overseas users find other sources in the future,” the fourth trader said.