The global supply of manganese ore is tight, leading to a significant increase in the prices of downstream manganese-silico alloys, and the futures of manganese-silico have also experienced a multi-day surge.

However, on May 14th, after a continuous rise, the price of manganese-silico futures fell back, with long positions starting to take profits and exit. The main contract of manganese-silico futures closed at 8,538 yuan/ton, with a drop of 5.07%.

In terms of news, recently, the manganese-silico market has continued to operate strongly due to the impact of disrupted shipments of Australian ore. Starting from the low price of 6,032 yuan/ton at the beginning of April, the main contract of manganese-silico futures has risen for six consecutive weeks, once touching 9,192 yuan/ton.

Zhao Lili, an analyst at Zhuochuang Information, analyzed to First Financial that the GEMCO, the main manganese mine of the world's largest manganese ore production company, Australia's South32, has been affected by continuous unexpected factors, affecting the shipment of Australian ore. This factor will result in a reduction of about 10% of the global manganese ore supply. In the medium and long term, as the industry enters the peak season and downstream demand gradually picks up, it will also support the market price of manganese products.

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Supply-side disturbances lead to irrational price increases at ports.

The price increase of imported manganese ore has driven the prices of downstream industries to follow suit. The cumulative increase of the main manganese-silico futures since early April has reached 37%.

In terms of spot goods, according to the statistical analysis of Baichuan Yingfu, the total increase in this round of manganese-silico spot goods is 1,672 yuan/ton. Specifically, at the beginning of April, both the futures and spot prices of manganese-silico reached a new low for the year. After entering mid-April, the news of disrupted Australian ore shipments continued to ferment, and the irrational price increase of new mine quotations, affected by market sentiment, continued to fluctuate. Since then, the manganese-silico market has seen a significant increase in spot and futures prices, with the immediate smelting cost rising sharply, and the manganese-silico market quotations have almost exploded.

Ferroalloys are alloys composed of iron and one or several metals or non-metal elements, mainly used in the steel industry, and their main use is as a deoxidizer during steelmaking. Among them, manganese-iron alloys containing a sufficient amount of silicon are called manganese-silico alloys, mainly used in downstream steel production. Different amounts of addition will produce different types of steel, such as adding 20kg of manganese-silico and 4kg of ferrosilicon to produce each ton of rebar.

Industry insiders told reporters that due to China's high dependence on manganese ore, any problems in the manganese ore supply chain can easily cause price fluctuations in manganese-silico alloys.

Public data shows that China's manganese ore mining volume can no longer meet the domestic demand for manganese alloy production, and the grade of domestic manganese ore is low, making it difficult to directly smelt manganese-silico alloys. Therefore, a large amount of manganese ore needs to be imported from abroad. In recent years, China's manganese ore imports have been on the rise, mainly from South Africa, Australia, Gabon, Brazil, Malaysia, Ghana, and other countries. The total import volume from these six countries accounts for more than 95%, with imports from South Africa, Australia, and Gabon accounting for more than 75% of the total imports.Zhao Lili, a professional, mentioned that in the domestic market, the demand for manganese ore mainly relies on imports. If the supply disruption of Australian manganese ore continues for a year, it will lead to an increase in the quotations of other manganese ore exports, and at the same time, the import of manganese ore will decrease throughout the year. According to the monitoring of the Business Society, the reduction in the shipment of Australian ore also strengthens the price increase of other manganese ores. Among them, the May domestic quotation of Comilog Gabon manganese ore increased by $0.5 per ton degree month-on-month, and the June quotation increased by $2 per ton degree.

From the perspective of the impact on the demand side, "the vast majority of the demand for manganese silicon and silicon iron comes from the downstream steel industry. The profit situation of steel will directly affect the operation of steel mills, and thus affect the price of ferroalloys," the industry insider mentioned.

Mysteel data shows that the weak resumption of work downstream has led to a low demand for steel, which did not meet market expectations. It is expected that the demand for steel will increase by 0.5% to 1% in 2024. In terms of alloy demand, steel mills continue to maintain, and it is difficult to increase the purchase volume in the second quarter, and the inventory of manganese silicon needs to be digested.

According to the monitoring of the Business Society, in terms of production of downstream steel enterprises, the average daily output of crude steel of key steel enterprises in late April increased by 3.8% month-on-month and decreased by 0.33% year-on-year, and the demand for manganese silicon alloy increased. However, at present, the price of manganese silicon has risen, and the supply of alloy factories is tight, and enterprises are facing high procurement costs and the uncertainty risk of manganese ore, which will also continue to support the market's bullish sentiment on the price of manganese silicon.

There are violent fluctuations in the stock prices of listed companies.

Under this background, the stock prices of domestic related listed companies have also fluctuated violently. For example, Southern Manganese Industry (01091.HK) is mainly engaged in electrolytic metallic manganese, manganese sulfate, electrolytic manganese dioxide, manganese silicon alloy, and high-carbon chromium iron. The company's stock closed up 32.58% on May 8. From the beginning of April to now, the company's stock has accumulated an increase of more than 103%.

However, as of the close on May 14, the stock closed down 10%, reporting 0.52 Hong Kong dollars. From the perspective of the company's fundamentals, in 2023, Southern Manganese Industry's net profit attributable to the mother company after deducting non-recurring gains and losses was 1812.35 billion yuan, a year-on-year decrease of 106%.

There is also an A-share company, Xiangtan Electrolysis (002125.SZ), whose stock price has accumulated an increase of about 43% from the beginning of April to now. Among them, from April 26 to May 10, the company's stock price accumulated an increase of about 52% in 8 trading days.

According to the 2023 annual report disclosed by Xiangtan Electrolysis, the company's net profit attributable to the mother company during the reporting period was 352 million yuan, a year-on-year decrease of 10%, and the net profit after deducting non-recurring gains and losses was even a year-on-year decrease of 24.5%.Manganese silicon futures have seen a continuous surge, which has attracted the attention of the exchange. The Zhengzhou Commodity Exchange (hereinafter referred to as "ZCE") has decided to implement trading limits on manganese silicon futures contracts.

According to the ZCE announcement, starting from May 14th, the maximum number of positions that non-futures company members or customers can open in a single day for manganese silicon futures contracts 2406, 2407, 2408, and 2409 is 2,000 lots, while for other manganese silicon futures contracts, the maximum number of positions that can be opened in a single day is 10,000 lots. The opening positions for hedging transactions and market-making transactions are not subject to trading limits.

At the same time, for non-futures company members or customers who exceed the trading limit for the first time, ZCE will take regulatory measures to suspend opening positions for no less than 5 trading days. For those who exceed the trading limit twice in total, ZCE will take regulatory measures to suspend opening positions for no less than 1 month. In serious cases, they will be dealt with in accordance with relevant regulations.