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Demand climbs as supply tightens for ferro alloys

Keywords:


Ferro-silicon

Ferro-silicon prices are posting impressive gains globally in early 2021, with supply concerns driving prices higher amid growing demand from consumers. The suspension of production in China’s Ningxia Province, together with Inner Mongolia’s proposed measures to shutdown small furnaces, is increasing supply concerns in China. Chinese dealers say they are worried about the possible market impact should the use of small furnaces be forbidden, given that the market has been underpinned by supply tightness since late July.

Inner Mongolia produces about 180,000 tpm of ferro-silicon, accounting for around 40% of total domestic monthly output, and up to 20-30% of total regional output may be affected. Chinese export prices are also rising following moves by Malaysian and Russian suppliers who raised their offer prices to Asian countries amid supply tightness and higher freight costs.

European ferro-silicon prices have been supported on tight supply, and should remain elevated as suppliers will be keen to at least hold spot prices until the return of steelmakers for their second-quarter contracts, with negotiations expected to begin in February. Both planned and unplanned outages from Ferroglobe and Privat will also lend support to prices in the near term.

The US ferro-silicon market is also on an upward trend amid firm fundamentals as increasing demand meets with low availability. US imports have also been limited due to fewer exports from traditional supplier countries. Ferro-silicon prices are poised to trend higher in the coming weeks and appear set to remain elevated through Q1 2021.

Silicon metal

The persistent and deepening shortage of containers in the Europe-China route is prompting supply concerns, while there has also been a noticeable pick-up in consumer demand for Q1 2021 deliveries. The shortage of containers is aiding in boosting silicon metal prices in the US and Europe where supply worries have resulted against higher consumer demand.

In China, export prices have drifted down after posting impressive gains, with sellers putting more focus on their domestic market until containers are more freely available, consequently weighing on prices initially in the domestic market, that in turn affected export prices.

European and US markets are tracking Chinese prices higher amid a resumption in end-user demand from the automotive sector. The recent introduction of new anti-dumping tariffs on Bosnia, Iceland and Kazakhstan in the US is adding support to a domestic market rally. Contracts for annual supplies in 2021 have also encouraged expectations of higher US prices, on the basis that there will be fewer suppliers of cheap imported silicon metal this year. We forecast silicon metal prices to trend higher through Q1 2021.

Manganese

Manganese ore and alloys prices are seeing across the board increases in January, supported by both buoyant demand and tight supply in early 2021. WSA figures indicate global crude steel production gained 5.8% year on year in December, with Chinese output up 7.7% over the period.

Supply constraints are also propelling prices higher, as not only have several smelters scaled down their alloy production, but there are several Covid-related logistics issues, particularly in South Africa, affecting supply. Assmang has declared force majeure on its medium-carbon ferro-manganese production in South Africa with the oxygen they need for their alloy production being diverted to medical applications.

The recent unplanned outage at Privat’s Zaporozhye manganese alloy plant in the Ukraine is also affecting supply and driving prices higher. Despite tight manganese alloy supply, Fastmarkets understands there are no immediate plans to restart any idled capacity, positioning alloy prices for additional upside through at least Q1 2021 at a minimum.

Chrome

There are advantages and disadvantages to the production of a commodity being dominated by just one country and these have been evident during the past year with regards to chrome. While prices of chrome ore spiked during April and May of last year as disruptions to supply in South Africa affected shipments (by far the world’s largest supplier of chrome ore), the resolving of that country’s supply issues shortly thereafter meant the resolving of the world’s supply issues, more or less, and prices duly fell back to earlier levels. Of course, it helped that global markets were already in a general state of oversupply before the emergence of the covid-19 pandemic.

Nevertheless, new issues regarding supplies of chrome ore from South Africa over the past month have put global chrome markets on edge again, with prices for a number of products spiking upwards in the past few weeks after months of relative pricing stability. As in April/May of last year, the supply issues once again concern restrictions on transport activity imposed as a result of the spreading covid-19 pandemic, which has worsened notably in South Africa since early December. A repetition of the two-month-long price spike for chrome materials seen in April/May of last year appears likely.

Molybdenum

Molybdenum markets shot higher in the first half of January and then paused, which prompted some profit-taking most recently, but market sentiment suggests that the move will be short-lived given increasing consumer demand and relatively tight availability.

Market focus is on the latest Covid-19 lockdown measures in China’s Hebei province that could affect Chinese steel production and consequently molybdenum consumption. Chinese molybdenum suppliers have so far shown little interest in selling material abroad as domestic buyers are taking up most of any excess availability. In Europe, stocks in Rotterdam were run down last year when buyers were reluctant to build new positions amid the uncertainty in consumer demand created by the Covid-19 pandemic. Trader restocking has started in January and is expected to pick up in earnest as steelmakers return in February to settle second-quarter deliveries and possibly to buy any supplementary material needed on a prompt basis to see out their smelting needs until April.

Prices have consolidated gains, with expectation of stronger consumer demand in the near term as the market returns fully after the Christmas and New Year break. Tight availability and steady Chinese demand are supporting prices despite potential for profit-taking in the coming weeks amid any pause in what is looking like a long-term run higher through Q1 2021. Any dips are likely to be short-lived due to underlying tight availability and expected firm consumer demand in the stainless steel sector.

Vanadium

Ferro-vanadium prices trended higher over the past month, in line with our expectations. European prices are climbing on the back of tight prompt inventories and increased demand from steelmakers. As European prompt supplies have tightened and prices have improved, we have seen less interest in diverting material to the Chinese market. Significant premiums achievable in the Chinese market relative to Europe prompted a surge in Chinese ferro-vanadium imports during the latter half of 2020. With Chinese ferro-vanadium prices declining in Q4 2020 under the weight of these excess supplies, premiums were eroded and import opportunities subsided.

Chinese ferro-vanadium prices are rising as domestic steelmakers returned to the market to replenish inventories, with steel mill purchasing exceeding expectations. Positive signals from steelmakers prompted both vanadium pentoxide and ferro-vanadium suppliers to boost prices.

We maintain the view that demand will rise globally in 2021, spurred higher by government stimulus packages intended to support economies in the post-pandemic period. The potential for significant infrastructure spending plans in Europe, the US and China would be extremely stimulative for rebar and in turn, vanadium demand in the medium term. In the near term, we expect vanadium prices to trend stable to higher on tight supply and improving demand from steelmakers.

Tungsten

European ferro-tungsten prices posted impressive gains over the past month, rising to their highest level since mid-March 2020. Higher European prices reflect tight prompt availability and consumer restocking in the region as industrial and manufacturing production improve.

Chinese tungsten concentrates supply remains restricted, lending additional support to tungsten prices. Rising raw material costs pushed Chinese tungsten APT and ferro-tungsten export prices higher in early 2021. We forecast tungsten prices to trend stable to higher in the near term on tight supply and improving demand.

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