FOCUS: Five supportive factors for manganese ore prices

A 10-week decline in low-grade manganese ore prices stalled on Friday June 21 and Chinese port ore prices have been rebounding dramatically from 2019 lows reached in early June.

Fastmarkets’ 37% manganese ore index, cif Tianjin held at $5.26 per dry metric tonne unit (dmtu) on Friday. 

Fastmarkets’ China port index for 37% manganese ore increased by 2.30 yuan to 47.50 yuan per dmtu (equivalent to $5.95 per dmtu, excluding VAT and port handling fees) on Friday. 

Furthermore, Fastmarkets’ China port index for 44% manganese ore edged up by 1.70 yuan week on week to 49.30 yuan per dmtu in the latest assessment.

Manganese ore prices have been under pressure since April due to rising inventories in Chinese ports, low manganese alloy prices and general poor sentiment. The 37% cif Tianjin index was as high as $6.20 per dmtu at the start of April, while the 37% and 44% China port indices were at 49.40 yuan and 54.50 yuan per dmtu respectively on the same date.

But a number of supportive factors have started to emerge.

Most of these factors are not linked to the fundamentals of supply and demand; they are strategies aimed to avoid incurring losses on material already held, but they have the potential to strongly influence prices.

Fastmarkets examines the five main factors supporting manganese ore prices today and how the non-fundamental factors have gained influence.

Strong rebar prices
Recent strengthening rebar prices are earning steel mills handsome profits despite rising steel raw materials prices, market participants told Fastmarkets, adding that such support is filtering up to the supply chain.

The most-traded October rebar contract price hit 4,013 yuan per tonne on June 26, the highest level since October 2018.

Fastmarkets assessed the eastern China domestic rebar ex-works price at 3,900-3,950 yuan per tonne on June 25, rebounding from June’s low of 3,790-3,840 yuan per tonne on June 18. 

This represents a fundamental factor supporting manganese ore prices, largely through its support for demand and prices of manganese alloy, which is a feedstock for steel production.

“When the construction industry is doing well, that supports rebar so steel mills put less pressure on silico-manganese producers to reduce their prices,” a market source told Fastmarkets.

Recovering silico-manganese prices
Silico-manganese prices have already rebounded strongly after a long period of struggle for smelters who had seen profit margins narrow amid high ore prices and subdued prices for their own product.

Fastmarkets’ price assessment for spot Chinese silico-manganese, ex-works, rose to 7,350-7,400 yuan per tonne on June 21, up by 100 yuan per tonne from 7,250-7,300 yuan per tonne on June 14.

The silico-manganese futures market, which has been rising since early May, has been supportive for ore prices and physical alloy prices.

The most-traded September silico-manganese contract on the Zhengzhou Commodity Exchange (ZCE) hit a six-month high of 7,834 yuan per tonne on June 26.

Futures prices can act as strong drivers for the ore and physical alloy markets and can also cause great volatility.

Market participants are bullish about July silico-manganese purchase prices, which are due to be announced by steel mills at the end of the month.

‘Frozen stocks’ mean availability is tighter than it appears
The stabilization of seaborne low-grade ore and the rally of domestic Chinese port ore prices comes despite a multi-year high in Chinese port stocks that has weighed on sentiment and prices.

Fastmarkets’ assessment of manganese ore inventories at Tianjin and Qinzhou ports peaked at 4.06-4.18 million tonnes on June 3, the highest level since Fastmarkets started to track the Chinese port inventory in April 2017, before dropping to 3.85-3.93 million tonnes on June 24.

The material already held in the ports was purchased when prices were higher, so consuming or selling that ore in today’s market would represent a loss. To avoid such losses, manganese alloy smelters and traders have held back from consuming in the falling market, leaving volumes “frozen” in ports.

This means availability is tighter than stock levels suggest.

Fastmarkets reported in May that the build-up in stock itself was exacerbated by similar behavior, as smelters minimized intake of high-cost ore in favor of a “hand-to-mouth” procurement style.

While port inventory piled up, it was being countered by lower-than-normal inventory at manganese smelters.

Traders averaging out import costs
Manganese ore buyers, particularly traders have moved to secure and stockpile lower-priced ore, resulting in a flurry of fresh demand.

They are trying to “average out” the cost of their overall positions by buying cheaper ore to offset the high-priced ore they purchased earlier in the year.

The more material traders buy during a price dip, the more effectively they can balance their overall purchasing costs.

This could give them the opportunity to break even or take profits when they sell the material they would otherwise have to keep frozen in ports or accept a loss on.

Much of this demand is distinct from real consumption.

Traders pushing up offers for ore in ports
Amid the improvement in demand across the supply chain, particularly for silico-manganese, traders holding material in port have grown more bullish and have been pushing up spot offers for ore in the ports, resulting in the sharp price increases.

Part of this trend is another example of traders attempting to stem losses on material they have been holding in ports after purchasing at higher prices earlier in the year.

“Traders will continue to push up the prices since there is a gap between today’s spot prices and the purchase costs they made in March,” a trader said.

Fastmarkets’ 37% manganese ore index reached a 2019 high of $6.22 per dmtu in March.

When port prices rise, narrowing their discount to seaborne cargoes, or representing a premium, as they do today, Chinese buyers are more likely to accept imports.

“The market is ticking up; port prices are climbing above seaborne prices so buyers are pushing for seaborne material again,” a miner told Fastmarkets.