Uncertainty for manganese market participants amid China’s Covid-19 woes
The latest coronavirus-linked lockdowns in China have instilled an air of bearishness in the manganese ore markets, with a month-long price rally being capped by looming concerns over downstream demand
In addition to the possible economic impact China may suffer in the short term, many participants are wary about potential price volatility against a backdrop of tight supply from major exporting countries and strong demand elsewhere in the world.
Weakening demand, cautious buying
Producers of manganese ore have identified a softening in demand in response to the latest wave of the coronavirus in China and the government’s strict zero-Covid policy.
Tough containment measures in several regions, including the major steelmaking hub of Tangshan, have impacted flows of raw materials and slowed steelmakers’ operating rates. And this was expected to hamper demand for manganese ore and alloys, one raw component for steelmaking, market participants said.
“The Covid situation means there is uncertainty surrounding underlying steel demand in China,” a manganese ore producer source said.
The weakened sentiment has translated into falling manganese ore prices.
Fastmarkets’ calculation of the price index for manganese ore 37% Mn, cif Tianjin, dropped by $0.10 per dry metric tonne unit (dmtu), or 1.76%, to $5.59 per dmtu on Friday March 25, from $5.69 per dmtu one week prior.
On the same day, Fastmarkets’ calculation of the price index for manganese ore 44% Mn, cif Tianjin, dipped by $0.05 per dmtu, or 0.64%, to $7.80 per dmtu on March 25, from $7.85 per dmtu a week earlier.
Buyers in China have showed a cautious buying attitude.
Smelters in China are struggling to make a profit at current silico-manganese prices, so there is little appetite among them to buy more ore feedstock than required at the moment, Fastmarkets heard.
“Alloy producers are barely making money at current prices and the ore spot market is drying up as a result,” a second manganese ore producer source said. “I expect there will be a gradual softening in prices as producers fight for liquidity - demand in China will determine what happens to prices next.”
Fastmarkets assessed the price of silico-manganese 65% Mn min, max 17% Si, in-whs China, at 8,300-8,600 yuan ($1,306-1,353) per tonne on March 25, down by 200 yuan per tonne from 8,500-8,800 yuan per tonne the previous week.
Participants calculated production costs, based on spot raw materials prices, at roughly 8,300-8,500 yuan per tonne, at the time of writing in late March.
“Producers would volunteer to cut their production should ore prices pick up further while alloys prices remain flat,” a manganese ore trader in northern China said.
The other group of buyers in the market, trading houses, weighed up the risk of building up stocks in the current high-price environment – despite the downward corrections recorded on March 25, the cif 37% and 44% were still at two-year and four-year highs respectively.
“This could be a peak, everyone is taking a cautious step [in regard to] building up stocks,” a second manganese ore trader in eastern China said.
Additionally, there is an expectation that ore prices in the port market will drop amid signs of greater willingness to sell but demand remaining slow over the past two weeks, which has dampened buying appetite for seaborne material further.
Fastmarkets’ calculation of the manganese ore port index, base 37% Mn, range 35-39%, fot Tianjin China, slid for a second week, to 40.40 yuan per dmtu on March 25, down by 0.70 yuan per dmtu, or 1.70%, from 41.10 yuan per dmtu a week earlier.
On the same day, Fastmarkets’ calculation of the manganese ore port index, base 44% Mn, range 42-48%, fot Tianjin China, dropped by 0.80 yuan per dmtu, or 1.31%, to 60.40 yuan per dmtu, from a historic high at 61.20 yuan per dmtu on March 18.
“It is risky to buy seaborne material at current price levels if you expect the portside price will have fallen while the material is in transit,” a manganese market participant said.
“Ore traders in China are not willing to take a position at current prices even for the end of May, and this is creating pressure on ore,” he added.
Tight volumes, relationship selling
Despite the wariness from the buy side, miners have successfully sold their April-shipment material.
Sources attributed this partly to lower volumes being offered from South Africa and some high-grade origins such as Australia and Gabon.
“Demand is low [for low-grade]; the buyers are pessimistic about the outlook for the market. Fortunately, I don’t have huge volumes to offer,” a third manganese ore producer source said.
“Demand for higher-grade material has been a big thing for the past few months but I think there has been lowered offered volumes, which has pushed up the price,” a fourth manganese ore producer source said.
The tight supply has meant consumers have been more accepting of higher prices even if there has been limited demand for large volumes of material. And this factor has particularly boosted purchase appetite among ore consumers looking to eliminate their dependence on spot supply in China.
“The evidently price rises in port markets this year have put producers who only procure from these markets in a tough position; the lesson is to secure some supply from seaborne markets, so they do not have to buy from ports when prices become too high,” a third trader in eastern China said.
On top of this, consumers have accepted current prices levels in order to maintain their long-term relationships with producers rather than out of short-term demand for feedstock, according to some market sources.
“Even if the volumes were reduced, the latest selling was relationship-based so everyone accepted the prices,” the third producer source said.
This has led to concern the market may have run ahead of the fundamentals and demand will not be able to sustain current prices.
“Consumers have been buying in order to maintain relationships so we have been seeing artificial demand and liquidity,” a market participant said. “As a result, I expect prices will come down as the current levels have become unsustainable,” a fourth trader said.
Those who were more optimistic toward the demand outlook anticipated the Chinese government would seek to maintain economic activity amid the latest Covid-19 outbreak in the country.
“It looks as though the government will act to support the economy and take a more practical approach to Covid,” the first producer source said. “Assuming the government is more positive, then I am sure confidence will pick up again.”
Many participants in China similarly expected the government to ease policies to revive the property sector and carry out higher infrastructure spending, which would boost steel-related demand.
“With mega cities like Shenzhen and Shanghai in the grips of lockdowns, a series of stimulus policy will be necessary to achieve the economic goal this year,” a fifth trader in northern China said.
Earlier in March, China sets its 2022 gross domestic product (GDP) growth target at around 5.5%, a target described by many participants as “not easy to reach” amid the recent Covid-19 outbreak, the Russia-Ukraine conflict and a possible further slowdown in global growth hit by rapidly rising oil prices.
Additionally, the increased appetite for manganese ore from markets outside of China have sent some but limited support to market confidence, participants said.
The Russian invasion of Ukraine has disrupted manganese alloys supply and boosted prices, with Ukraine accounting for around 10-12% of Europe’s annual manganese alloys supplies. As a result, manganese ore producers elsewhere have been incentivized to ramp up their output.
“Demand remains very strong outside of China, I assume this is because smelters are pushing up production up to compensate for the loss of material from Ukraine,” a fifth manganese ore producer source said. “Although, the extent of the latter remains still to be seen.”
Indian ferro-alloy producers have reportedly driven up their output and boosted their offer prices into Europe and Asia. And this has supported demand for ore from India.
“Volumes of ore have been diverted to India from China. Our sales to India have risen and so have other producers’,” the third producer source said. “Demand has also increased for parts of Europe.”
However, despite the rise in demand from markets outside of Europe, China remains the dominant market.
Parcel sizes for consumers in India, for example, tend to be considerably smaller than for China.
“Higher prices in non-China markets have bolstered sentiment especially when miners do not have that much to offer,” a manganese ore buyer in China said. “But buyers in India and Europe can only dilute a certain amount of the supply to China that still remains the largest ore consumer in the market.”