Manganese ore prices have experienced significant volatility over the past two years, reaching excessively high levels once again in 2018 Q1. What was behind the latest rally and can it be repeated?
This insight references bi-weekly CRU assessed prices for Mn ore at Chinese ports, CIF China and for domestic silico-manganese to demonstrate market dynamics during the last 6 months and to draw conclusions about price direction in the near-term.
Ore started rising after the rally in Chinese SiMn prices in December
Chinese silico-manganese prices lifted by 36% in December 2017, rising from RMB7,025 /t, DDP for 65% Mn to RMB9,550 /t, when the government of Ningxia province unexpectedly announced production restrictions on environmental grounds. The province accounts for ~25% of China’s total silico-manganese production and, anticipating a shortage, producers in other provinces took the opportunity to ramp up production. However, production in Ningxia declined by only 21% m/m in December, as restrictions were less severe than anticipated and China’s total silico-manganese output fell by only 3% m/m.
Restrictions were lifted in early-2018 and, although still elevated, prices fell back to RMB8,450 /t in mid-January and stayed at that level through most of Q1, declining marginally to RMB8,200 /t by end-March.
The sharp increase in silico-manganese prices resulted in a significant improvement in margins for Chinese producers because manganese ore prices initially did not increase to the same extent. Improved profitability resulted in continued, very strong silico-manganese production through Q1, which increased by 17% q/q to the highest levels since end-2014. In turn, this drove demand for manganese ore higher and international manganese ore suppliers seized the opportunity to increase prices. Strong domestic demand was also reflected in low stock levels, which fell to just 1.7 Mt in February, but which subsequently recovered to ~2.3 Mt in March and 2.5 Mt in April.
Chinese SiMn producers margins squeezed by end-March
While production of silico-manganese in China rose sharply in Q1, demand from the steel industry remained subdued, partly due to seasonal factors, but also due to the restrictions during the ‘heating season’. Consequently, by March, the market became oversupplied, with few transactions taking place, which began to put downwards pressure on silico-manganese prices. At the same time, high manganese ore prices squeezed the margins of Chinese producers to breakeven levels. In April, silico-manganese prices moved lower, to RMB7,950 /t, as mills held off from purchases despite the ‘heating season’ coming to an end, due to high inventories.
Weaker Chinese demand reflected in falling port prices
As the silico-manganese market weakened through March, Chinese demand for manganese ore also weakened and only a few deals were recorded. However, prices managed to hold at ~$8.0 /dmtu, CIF China for 36-39% Mn during the month. Further weakening of demand for manganese ore in April saw port stocks rise to 2.5 Mt and this resulted falling port prices. As the charts below show, port prices were the first to react to weakening demand and further show that international prices for 36-39% Mn need to move even lower than the current $7.4 /dmtu to return to parity with port prices.