GLOBAL FERRO-SILICON WRAP: China hits record market-assessed peak while Europe, US track the trend

Chinese ferro-silicon prices have reached a ten-year high while the European spot market continues to rally higher and the US follows.

Chinese ferro-silicon prices have hit a ten-year peak, according to Metal Bulletin historical data. China is taking remedial action to tackle polluting heavy industries, such as metals production, and shutdowns are seen lasting until the end of the calendar year at least.

The European spot market is also rallying and has moved higher through the month while consumers seek to buy longer-term delivery settlements for the first quarter of 2018.

In the US, a key importer of Chinese ferro-silicon, the market is also trending higher. US prices are expected to move up again this month while suppliers have the option of selling to more lucrative markets in Asia.

  • China at 2006 market price peak
  • Europe targets €1,500 per tonne
  • US rallies in line with China

China hits record peak
Chinese ferro-silicon prices have hit their highest level since Metal Bulletin began to assess the market in June 2006, while bullish market sentiment strengthened on apparently limited availability over the winter months.

Metal Bulletin assessed Chinese domestic spot prices for ferro-silicon basis 75% silicon at 10,000-12,000 yuan ($1,510-1,813) per tonne on Friday December 8, up almost 50% from the week prior.

On December 1, Zhongwei City, Ningxia province, ordered a shutdown of ferro-alloys refineries in the region. The affected production capacity accounts for about a quarter of the total volume in China, according to dealers. While it is unclear when the production suspension may end, dealers expected domestic ferro-silicon refineries will not resume full operations until January at the earliest.

“A minimum of 60,000 tonnes a month of ferro-silicon production will be affected,” a trader said.

On December 6, a major ferro-silicon producer in China increased its official market quotation to 12,000 yuan per tonne.

“The market influence at present is ferro-silicon availability, not the price,” a producer source said.

Small refineries are reluctant to sell ferro-silicon because they hope to make bigger profits when prices climb further, the trader said.

The most traded January ferro-silicon contract price on the Zhengzhou Commodity Exchange jumped more than 5% to 9,062 yuan per tonne on December 8, an increase of 1,714 yuan per tonne from a week before.

The current state of supply in China has also pushed up ferro-silicon export prices to a multi-year peak. The Chinese ferro-silicon export fob price was assessed at $2,100-2,400 per tonne last Friday, compared with $1,450-1,500 per tonne a week before.

While record price peaks have diminished overseas demand to an extent, deals have been done as high as almost $2,400 in the second half of last week while buyers without stocks had no choice but to do deals at the new higher price levels. The Chinese market rally has affected other Asian markets, with one major supplier in Southeast Asia no longer offering alloy.

Europe extends rally, more expected
European ferro-silicon prices increased in the past week, with the market extending a bounce from the week before while dealers prepare to settle first-quarter delivery settlements. Spot market availability is tight and replacement costs from outside the European Union are increasing in line with the trend in China.

Other Asian suppliers, such as Malaysia, are expected to target more profitable prices in China where ferro-smelters are reported to be cutting production in coming weeks amid national pollution controls. European sources have been trying to source alloy from Brazil, but no firm deals have been reported yet.

Ahead of long-term delivery settlement negotiations, the trend in European spot market prices should be influential in those contract talks. First-quarter 2018 delivery settlements were due to be finalized in week 51 or 52. Longer-term contracts may be signed off earlier, however, while consumers look to secure shipments before offer prices climb much higher.

Last month, suppliers had suggested quarterly settlements from next January might be agreed at around €1,370-1,380 ($1,611-1,622) per tonne. Still, increases in spot prices this month suggest the three-month settled delivery price may well be agreed above €1,400 per tonne.

Metal Bulletin assessed European ferro-silicon, lumpy basis 75% Si, prices at €1,380-1,420 per tonne on Friday December 8, a peak so far this quarter. One supplier reported selling several hundred tonnes of standard grade ferro-silicon at around €1,420 per tonne, while a German consumer bought 100 tonnes at €1,380 per tonne on call.

“It was the lowest price we could get,” the consumer said, adding, “We expect offer prices to be more than €1,400 per tonne if we look for any more ferro-silicon in Europe for delivery in the near term.”

Ferro-silicon for January shipment has been selling at €1,400-1,460 per tonne delivered and spot prices are expected to jump to €1,600 per tonne by January, another supplier said. Traders expect a more modest increase to around €1,500 per tonne, however.

The European spot market hit an annual peak of €1,410-1,525 per tonne in September this year, after an annual low of €1,120-1,200 per tonne in March.

The market averaged around €1,150-1,200 per tonne in the first quarter of 2017 after moving up from €1,100-1,130 per tonne in late December 2016.

A move above €1,500 per tonne would mark a seven-year peak for European ferro-silicon prices after the market reached €1,500-1,550 per tonne in December 2010. Europe typically consumes around 600,000 tonnes per year of ferro-silicon, relying on 400,000 tonnes of domestic production and 200,000 tonnes of imports.

US ferro-silicon market tracks China
The US ferro-silicon market has rebounded in the past week as spot prices moved in line with international prices, particularly in Asia. Spot prices for ferro-silicon moved to 97-105 cents per lb on December 7, from 92-95 cents per lb the week before, according to Metal Bulletin sister publication American Metal Market’s latest assessment.

The week’s trading activity started slowly but picked up quickly while dealers responded to rallying prices in China, a key exporter to the US.

“I am not sure why people would be offering anything below $1.00 [per lb] at this point,” a supplier source said.

“There is some real crazy [trading] activity going on in Asia that is just starting to have an effect here, and that will only be amplified moving forward. There is
a legitimate issue with production being taken out of the world market…it is just a matter of how long that lasts,” a second supplier source said.

With production cuts in China, dealers are worried about availability in the US because suppliers will start to seek more lucrative Asian markets instead.

“We have replacement costs easily over $1.00 warehouse and rising at this point,” a third supplier source said, adding, “There are not a lot of available units around right now and future supplies will disappear to the Far East.”

Dealers reckon prices increases will persist while potential suppliers outside of China react to market developments and increase their offer prices.

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