Chinese magnesium prices fall to six-month low as economic slump hits demand

Chinese magnesium prices fell below the key Yuan 22,000/mt ($3,185/mt) mark in the week that started Dec. 12 to reach a six-month low, as the economic slump weighed on both local and global demand, leading to oversupply in the Chinese domestic market, industry sources said Dec. 13.

On Dec. 12, mainstream smelters in the key magnesium hub Yulin quoted prices of Yuan 22,000/mt, but as trade remained muted, some other plants reduced offers slightly and some were looking to negotiate offers down in case of actual orders, state-backed industry group Shaanxi Magnesium said.

Yulin used to report daily magnesium trade of as much as 1,000 mt or more, but such volumes are rare now, according to sources.

The recent strong rally in the Chinese currency has weighed on overseas buying, with yuan's cumulative exchange rate strengthening from early November to mid-December by around 5%, Shaanxi Magnesium said.

As of Dec. 12, tax-inclusive price offers for 99.9% magnesium ingot in Fugu and Ningxia were at Yuan 21,900-22,000/mt, Shaanxi Magnesium reported. Ingots with similar specifications and grade in Shanxi's Taiyuan were offered at Yuan 22,100-22,200/mt, while in Wenxi offers were in the range of Yuan 22,200-22,300/mt.

December prices are now below November prices of Yuan 22,600-25,000/mt and sharply below October prices of Yuan 24,700-25,500/mt, according to the China Nonferrous Metals Industry Association (CNIA) and other industry sources.

Current prices are also lower than January-October average prices, which were at Yuan 32,301/mt, according to data from the CNIA.

Slow demand

Both local and global economies have slumped, leading to weak magnesium demand and declining trade in China since November, analysts said.

China is a key global magnesium supplier, with markets like Europe depending heavily on Chinese imports to meet their domestic requirements.

While some Chinese smelters have resorted to output cuts, this had a limited impact on the magnesium market and the sector continues to face rising supply and lackluster demand, analysts said.

Current magnesium prices are at breakeven levels, with some smelters facing margin losses starting to reduce output, according to commodity services company Zhejiang Netsun.

Some smelters insisted on firm prices on cost support, but buyers currently have been wary of placing orders, which is expected to keep prices under pressure in the near term, Zhejiang Netsun said.

Semi-coke sector troubles

Market players continue to be wary of the semi-coke sector, which has been facing margin pressures.

Key industry group Shenmu Semi-coke Industry Association recently said that while raw coal prices have remained higher, this has not translated to higher semi-coke prices, making it challenging to run semi-coke operations.

The magnesium sector in Yulin-based Fugu County is known for its integrated industry value chain. Companies from the coal, semi-coke, power, ferrosilicon and magnesium sectors operate together, using waste gas from semi-coke output to power magnesium smelting.

Long term

China's magnesium sector is currently facing an oversupply situation, but supply over the long run is expected to remain under pressure, mostly due to China's ambitious energy policy, which aims to save energy and reduce emissions, according to analysts.

Due to limited domestic semi-coke output capacity and its low sectoral run rates, Yulin's future magnesium supply would shrink, analysts at China-based Capital Securities said.

To produce 1 mt of magnesium, about 13 mt of semi-coke is typically required.

Due to the lack of semi-coke sector's capacity growth in China, Yulin's magnesium smelting growth in the long term would slow down, Capital Securities said.

Yulin's magnesium sector is using outdated technology, such as using a high energy consuming process, which could potentially lead to future output cuts or capacity suspension, according to Capital Securities.

The Yulin government is aiming to reduce semi-coke output capacity, ordering the industry to build any new semi-coke capacity by equally swapping it with old capacity.

Back in January, China's Ministry of Industry and Information Technology ordered 22 Yulin semi-coke producers to follow national environmental and energy policies.

These 22 producers have total semi-coke output capacity of 15.35 million mt/year, accounting for 21% of Yulin's total capacity, latest data from the Yulin government showed.