After growing world steel output throughout spring 2019, the usual summer season lull has arrived early this year to manganese markets. Despite continuous growing steel production in China and new stimulus provided by Beijing, market insiders do not forecast any recovery in the next months to come.
Oversupply in the Chinese steel market
After record output in April 2019, Chinese steel mills were still on their way up in May. Steel production in May grew 5% MoM and 10% YoY to a volume of 89.1 Mt. Chinese steel producers were encouraged by government support.
The China government supports its domestic market amid an economic slowdown and trade tensions with the USA. Local governments were allowed to increase the issuance and use of special bonds, which is expected to provide strong support for major infrastructure projects in the country. From January to May 2019, China issued new local government bonds worth RMB 1.46 trillion ($211 billion), of which 59% were special bonds. As a result, the total 2019 quota for special bonds was fulfilled by 40% by the end of May. The quota was set by the government to a record-high level. However, the stimulus may only lead to higher steel demand from infrastructure development in H2 2019. As of now the growth in infrastructure real spending is still at 4.4%, which is far from the desired and targeted level.
For the moment, the local steel demand in China is not enough to absorb the additional production volumes. In May, the demand from the construction sector slowed and vehicles production, as well as sales, fell for the third month in a row. As a result, domestic finished steel prices keep going down, putting pressure on producers’ margins. As a result, steel mills are using up existing stockpiles of manganese ore and alloys rather than buying new material.
Chinese manganese ore traders have overestimated demand…again
Encouraged by growing steel production and government stimulus for the Chinese economy, trading companies in the Chinese ports bought new cargoes of manganese ore from overseas. But Chinese steel mills used up their existing stocks of manganese alloys rather than buying new material which resulted in a 6% MoM drop in the domestic SiMn prices in May. It is noteworthy that manganese metal prices went up in May. Mostly low-grade ore is used to produce manganese metal which does not impact the major market trends.
Decreasing prices for Manganese ore in the global market were an additional reason behind the growing Chinese imports. May prices dropped by 2%, June prices even by 5%. At the same time, manganese alloy producers’ profitability was low, which made them stay away from buying new ore and rather using their existing stocks.
As a result, China’s manganese ore port stocks hit an all-time high of 4.45 Mt on May 24 (up 32% MoM). By early June, the level dropped to 4.31 Mt, still putting pressure on Chinese domestic ore prices.
Amid record high port stocks, Chinese Mn ore prices have the potential to decrease further
All above explains why despite growing steel output Chinese domestic Mn ore prices were on the way down over last few months, and by the middle of June are 15% lower on average in comparison with the year’s start. According to market insiders attending the International Manganese Institute annual meeting in Vienna in June, high manganese ore stocks in China will continue to put pressure on global prices. Prices could retreat another 5-10% over the summer.
European manganese market follows the Asian trend
Crude steel output in Europe from January to April was down 2% YoY and reached 13.5 Mt. According to European price reporting agencies, local rebar and HRC prices have lost 3-4% since April, and the upcoming summer market lull will likely weaken steel demand and prices further.
Since early June, manganese alloy buyers and sellers are holding quarterly contract negotiations in the European market. Uncertain steel market prospects and falling Mn ore prices have forced SiMn and FeMn suppliers in Europe to grant discounts in their quarterly contracts. According to market sources, SiMn quotes have lost €40/mt from the end of May, and those for HCFeMn have lost €30/mt. It means that SiMn is now €60/mt cheaper than last year, whereas HCFeMn, thanks to more consolidated supply, is €25/mt more expensive.
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