China's Silicon Manganese Producers In A Dilemma

China's silicomanganese producers are sitting on thorns in March, given various negative factors such as steelmakers' cuts in purchasing prices and volumes, a fall in the price of imported Manganese ore, preferential electricity price removal and a dull export market. Many producers were ambitious to start full production after China's Lunar New Year but now face more production suspension. Those large-scale producers that hold high price manganese ore have no choice but to cut output.

FeMn65Si17 is now offered at CNY 7,200 to CNY 7,800 per tonne; FeMn60Si14, at CNY 6,200 to CNY 6,600 per tonne, down CNY 800 per tonne from their February levels. Export price stands at USD 1,100 per tonne to USD 1,400 per tonne and actual transaction prices stay even lower with thin deals.

BHP has axed its manganese ore price for China in the second quarter by 60%-65^ from 2008 level. 48% lump ore is quoted at over USD 6 per MTU; 43% small grain manganese ore, at USD 5.2 per MTU to USD 5.35 per MTU; 37% South African manganese carbonate ore, at USD 4.5 per MTU to USD 4.65 per MTU.

Traders at ports foresaw the manganese ore price drop. Now the price for 45% Australian lump ore stands at some CNY 52 per MTU falling by CNY 16 per MTU from its peak in February. Silicomanganese producers can save costs by approximately CNY 700 per tonne after their manganese ore price drop. However, silicomanganese price falls faster. Actual transaction price for FeMn65Si17 has declined by nearly CNY 1,000 per tonne within a month. Silicomanganese producers face another heavy loss after the one in last October.

The National Development and Reform Commission, State Electricity Regulatory Commission and National Energy Administration want to remove preferential electricity prices for energy-intensive industries. This will further push up silicomanganese production costs. On the other hand, the downstream steel price keeps falling, hence steelmakers have to reduce steel output, decreasing demand for silicomanganese. Besides, in view of volatile silicomanganese price, steelmakers remain cautious towards purchasing. Purchase prices in Mar have dived by CNY 700 to CNY 1,000 per tonne from the February level. A Hunan-based steelmaker is said to have settled the price at CNY 7,000 per tonne. Many steelmakers offer the price at some CNY 7,500 per tonne with limited purchasing volumes since they believe the silicomanganese price will slide further.

Source: Steel Guru
Against such a backdrop, silicomanganese producers have to resort to production cutback or suspension. As purchase prices have approached or even dropped below cost line, producers merely maintain regular customers. Further price drop, if there is any, will press producers to production suspension.