Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Manganese Market, a New Economic Growth Barometer?

Commodities / Metals & Mining Aug 24, 2011 - 04:13 AM GMT

By: Critical_Metals_Repo

Commodities

Best Financial Markets Analysis ArticleManganese's many uses in infrastructure and building materials make its market a strong barometer for gauging the world economy. Soaring growth in countries like China and India has led to high global demand. In this exclusive interview for The Critical Metals Report, Helen O'Malley, a bulk manganese specialist with CRU International in London, discusses how manganese prices are closely tied to the economy and, in contrast to exchange-traded base metals, overwhelmingly determined by supply and demand.


The Critical Metals Report: Economists often use the price of copper as a barometer of global economic health because of its many uses in infrastructure and building materials. Could manganese prices be an even more effective barometer of global economic health? What is your prognosis of global economic health based on what is happening in the manganese market?

Helen O'Malley: Unlike copper and other base metals, manganese is not exchange traded. The price of manganese is overwhelmingly determined by supply and demand. Speculation and confidence levels do not really come into play. Manganese pricing has a lot to do with the general health of the economy. For instance, industrial production and, therefore, levels of demand for steel in the developed world have not recovered to levels seen before the financial crisis. Therefore, a state of overcapacity exists in the manganese ferroalloy sector, so prices have been struggling to reach previous records. This is even though global demand for manganese is at a record high because of soaring growth in countries like China and India.

TCMR: You wrote that for the first time in Q410, China became a net importer of silico-manganese and high-carbon ferromanganese. Will this continue?

HO: That was the first time China became a net importer of manganese alloys, specifically silico-manganese and high-carbon ferromanganese. China has always been self sufficient in manganese alloys and has a great deal of overcapacity itself. To become a net importer is quite surprising.

TCMR: What is the impact?

HO: It is a symptom of the oversupply in the global market. Prices have gotten so low that it is now economical for some mills in China to import manganese alloys. This is not likely to be the start of a meaningful trend nor is China going to suddenly become a major net importer of manganese alloys.

TCMR: China has been stockpiling copper and other base metals. Is it stockpiling and hoarding manganese?

HO: It’s true, stocks of manganese ore at Chinese ports have built up sharply in the last year. In early 2010, stocks were around 2 million tons (Mt.). In May of this year, they peaked to almost 4 Mt., but since then they have eroded back to around 3.5 Mt. The widespread belief is that most of these stocks are held by Chinese traders who bought the material back when the price was higher, in 2010 or even earlier. They will not be releasing this material into market until the price recovers.

The natural level of stocks is bound to be higher now because consumption levels are higher. On a consumption-adjusted basis, stocks are actually around 2008 levels.

TCMR: In July's CRU Monitor, Bulk Ferroalloys edition, you wrote, "Offsetting the 5% year-on-year drop in Japanese crude steel production, South Korea output was 19% higher than it was in June 2010, while Indian production rose by 7.3%. Output gains have been much smaller in the European Union and the U.S., both in June and for the first half of this year as a whole." This does not mention China's percentage gains in steel production, but illustrates the ongoing shift of wealth from the West to the East. Is that permanent?

HO: We can see an extended period of weak and below-trend growth in Europe, the U.S. and Japan. In those countries, the structurally high levels of national debt and the measures taken to address this debt will most likely weigh down on growth for some years. This is a stark contrast to economic growth in China, India and other Asian nations.

TCMR: China now produces approximately 40% of the world's steel. Would you prefer that steel production be spread over more countries?

HO: Traditionally, steel production facilities are located to serve local or regional demand. China produces so much steel because it consumes so much of it. However, some locations are more cost competitive than others because of factors such as access to raw materials, labor costs and energy costs. Over time, we could see a higher concentration of steel production in lower-cost regions of the world. On the other hand, it is very difficult and costly to permanently close steel facilities, which is perhaps why we are not yet seeing an obvious shift taking place.

TCMR: How is Chinese dominance in steel production influencing the manganese market?

HO: China now accounts for around 40% of global steel production. Five years ago that share was only 30%, and 10 years ago it was 15%. China's increasing dominance as a steel producer has definitely had an impact on all raw materials markets. It has had an impact particularly on the market for manganese ore because China must import over half of its requirements for manganese ore. It’s a similar situation to what we see in the iron ore market.

TCMR: You said that the manganese ore market has been in a state of oversupply for about a year and that is pushing prices down. When will the market turn? Is the ore market structurally tight or are we on the brink of structural oversupply once a number of development projects in Africa come onstream?

HO: Manganese ore prices have been falling for the better part of a year now, but it seems that prices have been brought low enough to cut out a proportion of the higher-cost supply from the market. Port stocks have been falling for several months now and price stability has returned. This tells me that supply and demand fundamentals are in much closer balance now.

TCMR: When we spoke last May, manganese ore was priced at roughly $8/dry metric ton unit (dmtu). What is a dmtu going for now?

HO: The price of medium-grade ore—say 44% manganese oxide lump—is currently $5.30–$5.40/dmtu, delivered to China.

TCMR: We're talking about the ore, so that is the straight mined product. What is your near-to-medium term outlook for the manganese alloy market?

HO: In the medium term, looking at the next five years, the drawn-out recovery in steel production in the West will ensure that overcapacity in the manganese sector remains an issue. Ultimately, this means that prices and margins for manganese alloy producers will remain under pressure. One thing to watch is the market for refined ferromanganese. This particular form of alloy is used mostly in the production of high-grade and specialty steel and can also be used as a substitute for electrolytic manganese metal in some steel applications. Intensity of use of refined ferromanganese is rising relatively sharply, so we could see some more upside with demand and pricing of this grade of manganese alloy in the medium term.

TCMR: You had discussed earlier how steel makers in Europe are starting to substitute out the more expensive ferromanganese in favor of the cheaper silico-manganese. What is the impact?

HO: Because ferrosilicon prices have been a lot higher than silico-manganese and high-carbon ferromanganese prices, it is thought that some steel mills in Europe are trying to switch away from the combination of ferrosilicon and ferromanganese by consuming more silico-manganese. Not all steel mills can do this switch for technical reasons and, in the U.S., most mills would not consider switching. We are now slowly starting to see the price gap between ferrosilicon and the manganese alloys close up. But another thing to remember is that ferrosilicon prices are also strongly governed by underlying production costs, which have come under strong upward pressure recently.

TCMR: Is it experimental?

HO: No, the concept of switching between alloys has always been known to the steel industry. It has to do with the economics of using the alloys at their current pricing. However, as I mentioned, technical limitations mean that mills wouldn’t necessarily do this on a short-term basis. Also, some mills are constrained by the type of steel they are producing.

TCMR: Can I get some base prices for a few of the main products you deal with? When you talked to The Gold Report in May 2010, you said they couldn't manufacture steel without manganese, and manganese ferroalloy prices were 40%–50% lower than the peak levels of 2008. What is the per ton price of ferrosilicon, silico-manganese, silicon metal and high-carbon ferromanganese right now and do those prices compare to 2008 or even a year ago?

HO: Manganese ferroalloy prices have, on average, declined since May 2010. Back then, silico-manganese was priced at around $1,520/metric ton in the U.S. market. Now it is priced at around $1,370/metric ton. We've seen a similar decline in the other manganese alloy grades. The reason for this downward trend is the oversupply of manganese alloys. The other important factor is that the manganese ore price has been in decline with manganese ore being the main cost driver of alloy production.

TCMR: What are the main factors behind that fall in the price of ore?

HO: An oversupply. In 2009, rock bottom prices caused the manganese ore sector to aggressively cut its output. When prices recovered over the second half of 2009 and into 2010, production ramped back up to full capacity, ultimately pushing the market back into oversupply. You tend to get this lagged supply response in bulk mined markets because it takes time to ramp up or ramp down production at large scale mine operations and to tune output precisely to the level of demand. In the last year, there's been a degree of oversupply, but now we are seeing that some of the mines are trimming output again. It is a cyclical effect.

TCMR: Is the sector less exciting to cover when prices are in decline?

HO: No, because you have developments such as production cuts. What becomes interesting is determining who is left in the market and who is going to be forced out of production first.

TCMR: You mentioned earlier that there are a number of development projects coming on in Africa, but we have oversupply now. Is that going to push back the development timetable with those projects or will prices be driven down even further?

HO: South Africa is an interesting example because if you add up all of the potential new supply, it comes to approximately 15 million tons per year (m tpy). This is huge in a market that is around 45 m tpy. In reality, though, in South Africa, restrictions on rail and port capacity will mean that only a portion of this will find its way onto the seaborne market in the next five years. Infrastructure is also a major issue in other African countries where miners are hoping to develop projects. The market for manganese ore could stay tight for some time because these projects will not come online at the advertised dates.

TCMR: Right now we are seeing approximately 95% of all rare earth production being controlled in China. Will we see similar control in the manganese metal side?

HO: Absolutely. Currently, China controls around 95% of the world's supply of manganese metal and that represents a great deal of risk to consumers of manganese metal in the West, such as in Europe, Japan and the U.S. Not only is there a lot of price volatility, but security of supply is also an issue.

TCMR: Without recommending specific companies, what kinds of manganese or ferromanganese projects are of most interest to the Chinese?

HO: The Chinese and the Indians seem desperate to get their hands on any medium- and high-grade ore deposits. This is to provide them with a greater security of supply of the essential steel-making raw material. You cannot make steel without manganese, so it is a strategic move as well. The challenge is tracking down the remaining high-grade or even medium-grade projects. You want to find one that is not only economical to mine, but also has access to infrastructure.

TCMR: Like a port.

HO: Exactly, a rail or port. South Africa and other African countries have naturally attracted a lot of interest because of the abundant resources of high-grade and medium-grade manganese ore. There are also high-grade deposits elsewhere, such as Indonesia, Australia, Turkey and South America.

TCMR: Have you visited these projects?

HO: I just returned from South Africa where I visited a number of the mines currently in production, as well as a number of the companies in the development stage. It was a very interesting trip.

TCMR: Are there projects in more secure jurisdictions like North America or Australia that are coming onstream in the near-to-medium term?

HO: Australia has a long list of projects, and a number of companies have projects on the table in North America. North America does not have high-grade manganese ore or even medium-grade manganese ore, but there does seem to be, in parts, abundant supplies of low-grade manganese ore.

Some of these companies are looking to upgrade the low-grade manganese ore into a product that can be sold into the market. One of the major products they are looking at is electrolytic manganese metal, which has a variety of end uses, but the main end use is in the steel industry.

TCMR: How far off are those?

HO: Most of these companies are slating project startups toward the end of a five-year horizon. Some of them are making progress with exploration and defining their resource, but there are still several stages in the process to go, including raising finance and bankable feasibility studies.

TCMR: Are there any projects close to putting together a bankable feasibility study that could see greater interest as a result?

HO: Not that I know of, but that is not to say they are not at that stage.

TCMR: Can you provide me with a couple of themes in the manganese space that you expect to play out over the next year or two?

HO: In the next year or two, we could see some of these manganese ore projects develop. Some of the greenfield projects in Africa should move forward and even come into production. It will be interesting to see how that impacts market fundamentals. And I think it will be interesting to see what happens in the manganese metal space because we have definitely noticed interest for companies to try and reduce their current dependency on Chinese supply. With China currently the world's main producer of manganese metal, steel producers, aluminum producers and other consumers in Europe and the U.S. are dependent on Chinese exports. People are seeking alternative sources of supply.

The structural dependence on Chinese supply has triggered great interest in investing in manganese metal outside of China. Some of these projects happen to be located in North America, but there are also projects in Russia. At present, there is only one manganese metal producer outside of China, and that's in South Africa.

TCMR: What is the name of that company?

HO: The Manganese Metal Company of South Africa. A number of potential manganese metal projects are in the pipeline, including in North America, but also in other parts of the world. Certainly, that whole area of the market seems to be quite hot right now because prices are high and we have this structural dependency on China.

TCMR: Thanks very much.

Helen O'Malley is a bulk manganese specialist with CRU International in London, England. She manages research activities in the steel raw materials markets including iron ore, metallurgical coal and coke, and the bulk ferroalloys, including manganese, ferrosilicon and silicon metal. Since joining CRU in 2005, she has built up considerable expertise in the bulk raw materials markets with particular focus on iron ore and ferroalloys but more recently extending her involvement across all of the major raw materials markets.

Want to read more exclusive Critical Metals Report articles like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators and learn more about critical metals companies, visit our Critical Metals Report page.

DISCLOSURE:
1) Brian Sylvester conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Critical Metals Report: None.
3) Helen O'Malley: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: None.

Streetwise - The Gold Report is Copyright © 2011 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

The Gold Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.

From time to time, Streetwise Reports LLC and its  directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

101 Second St., Suite 110
Petaluma, CA 94952

Tel.: (707) 981-8204
Fax: (707) 981-8998
Email: jluther@streetwisereports.com

 


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in