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Curing China´s Coronavirus-Hit manganese market

market insights

February 28, 2020

The coronavirus outbreak has also infected the entire Chinese economy, crippling nearly all industries including the metal sector. Somehow by chance, the virus´ epicenter was in the province of Hubei – the home of some of the country's largest ferroalloy and steel producing plants. Comprehensive quarantine measures imposed by the government, have restricted movement of people and limited transportation of goods which ultimately have severely hampered manufacturing operations.

The ill effects have spread to the manganese metal market as well. From end-January till mid-February, daily melting of manganese metal in China dropped by 35% on average. In the provinces of Guangxi and Guizhou (representing about 40% of the country's total metal output) the activity dropped by 1.5 times. Enterprises in Hubei province (10% of the domestic market) have grinded to a halt since.

A crippled transport and logistics sector has made it very difficult for sellers to deliver raw materials to customers, which has led to a depletion of manganese ore reserves for plants producing manganese metal. A major operator of the manganese ore industry in China lamented to the media, ´I can conclude a contract for shipment of any batch, any kind of ore - especially since it is rapidly accumulated in port warehouses. But the irony of the situation is that there is literally no one to load the ore for transport, and the drivers have to stay quarantined for 2 weeks after every trip´.

By mid-February, China domestic prices for manganese metal soared by 20-25% while export quotations went up by 15-20%. China being the world's largest producer and exporter of manganese metal has dealt a severe blow to their export markets. For Europe, drawing 90% of the supply from China, was faced with material prices increased by up to 200-300 EUR/mt in February. The B2B trading platform for metals, Metalshub, had fixed price offers for flakes up to 2,300 EUR/mt and lumps for up to 2,700 EUR/mt, representing a 20-25% price hike from January levels.

As of the end of February, there are cautious signs of a Chinese supply recovery. With production in provinces mostly affected by the epidemic slowly gearing back up, prices for both domestic and export markets have been falling at a rate of 5-10% over the last two weeks.

Sources report that significant problems persist in transporting both manganese ore from port to factory and moving finished products to the ports. Even under current contracts, disruption of logistics services poses a high risk for delayed shipments. It seems unwise for foreign buyers to conclude new deals with Chinese producers under such circumstances.

The crisis has not been spared from controversies: factories and traders in China who already had to put business on hold for a long time for the Chinese New Year holidays were then hit by ensuing quarantine measures. It has been said that some are now trying to reap profits from the ensuing rumors and panic while jacking up prices to recoup financial losses. Market analysts predict that the manganese metal market will not fully stabilise before end of March.

The resilience of digital trading channels

The epidemic highlighted the vulnerability of the metals and ferroalloys market, which relies heavily on physical interaction and contact between key supply chain partners. Ironically, the human factor has been the weak link in this case. The somewhat archaic practices of the current trading and supply system have proven to be less resilient against the rise of such unforeseeable events. E-trading channels with their instant global business network connectivity and integrated services offer a good transition to hedge more against future crises.

When the coronavirus started to cause disruptions in China, the digital B2B metal trading platform, Metalshub reported an increase in transaction volume. In February alone, new listings to buy or sell manganese metal increased by 2.5 times and the amount of online negotiations increased a twofold, compared to the time before the Chinese New Year. The site offers a turnkey solution for the cumbersome process of the metals and ferroalloys trade: online procurement and sales, integrated logistics, insurance and all other essential services to facilitate safe and secure trade between global buyers and sellers. In the digital future a remedy for stabile metal trading may very well come from online platforms.

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