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Japanese traders warn mills of possible ferrosilicon shortage

Tokyo — Japanese traders, currently in negotiations with steelmakers forfirst-quarter ferroalloy supply contracts, said Wednesday they have warnedcustomers of ferrosilicon shortage following output cuts in China.

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Japanese mill sources said they could buy Malaysian and Russian supplies,while the traders said this was unlikely as non-Chinese volumes were limited. Producers in China's Ningxia autonomous region were forced to suspendproduction this week following power cuts by the government as part ofenvironmental measures, sources said.

Several Japanese traders said some Chinese producers were no longeroffering, while offers from Chinese traders and other Chinese producersskyrocketed to $2,000-$2,300/mt CIF Japan, for January loading from Tianjin.

Spot prices last week were assessed at $1,440-$1,470/mt CIF Japan, S&PGlobal Platts data showed.

"There are offers, but offers without a guarantee of cargo," said oneJapanese trader who was offered $2,000/mt CIF Japan.

"The numbers are crazy. I heard $2,300/mt CIF," said another Japanesetrader.

Some electric arc furnace steelmakers have issued buy tenders seekingsupply for January or January-March this week.

The first trader said the mills asked tender participants whether theyhad stocks in Japan, or were planning to import.

"If you say you have stocks, the mills say we want them all, bring themright away," he said.

The mills typically seek several hundred tons per month.

One mill, who planned to issue a buy tender for January next week, said apossible shortage had not crossed his mind.

"There is a time lag. Japanese stock prices are rising but gradually,slower in pace compared to Chinese prices, as stocks were purchased monthsbefore when Chinese export prices were lower. This week, I have heard Yen170/kg ($1,504/mt) delivered or less, which is still $100/mt higher than amonth ago, but lower than this year's high of Yen 180-190/kg. The steelmakersare relaxed because they think there are still stocks available," a secondJapanese trader said.

"We can buy from Russia, Malaysia," the mill source said.

"The mills do not realize non-Chinese supplies are limited," the Japanesetrader said.

A second Japanese electric arc furnace steelmaker source said hissupplies are under long-term contracts, and has stocks equivalent to threemonths' consumption.

"The bigger mills with contracts are protected, but the smaller spotbuyers will be forced to switch to silicomanganese and ferromanganese toreplace ferrosilicon," the first Japanese trader said.

This week, mills are pursuing the possibility to secure as muchferrosilicon stocks, and if supplies are insufficient, they will switch tomanganese alloys.

The mills are reluctant to do the switch as they have been usingferrosilicon for over a decade.

"In theory, substitution is possible, but there is strong hesitationbecause we have not done it for a decade," said the first mill source.

Spot silicomanganese prices were at $1,120-$1,130/mt CIF Japan this week,unchanged from a week ago, sources said.

"From next week onward, when more mills switch to manganese alloys,prices will start to rise," the first trader said.

--Mayumi Watanabe, mayumi.watanabe@spglobal.com

--Edited by Irene Tang, irene.tang@spglobal.com