Ferro Alloys Analysis in 2024, Chinese Market

Ferroalloy enterprises are small, scattered, and have excess capacity. The direction of structural adjustment of ferroalloy enterprises in the Chinese market has not reached the purpose of transformation. Industry insiders believe that only by grasping the new machine and opening up new bureau, the ferroalloy industry can achieve high-quality development.

The Demand for Ferroalloys is Down

Since 2023, in the face of the severe market situation, steel mills have continuously reduced the cost of ferroalloy and improved the utilization rate of ferroalloy. From the perspective of steel mill production, ferroalloy compared with iron ore and coke, the use and cost account for relatively low, procurement pricing power and discourse power is always in the steel mill, iron alloy upstream production enterprises bargaining power is weak, in the steel mill profit is poor, ferroalloy bear the brunt.

ferro silicon lump ferro silicon 75 ferrosilicon72 ferrosilicon70 ferro silicon manufacturer

At present, the terminal demand is in the off-season, the state of loss, steel mills continue to reduce production to alleviate inventory pressure, hot metal production fell sharply, the industrial chain formed a negative feedback, raw material prices fell more.

Futures Daily reporter learned from the business people, the iron silicon and manganese silicon two varieties of demand compared, iron silicon is more vulnerable than manganese silicon. It is estimated that the total demand for ferrosilicon in 2023 will decrease by 8.41% compared with 2022, of which the non-steel demand will decrease by 17.39%; The total demand for manganese silicon in 2023 increased slightly by 0.21% compared with 2022, but there were two rounds of storage of about 191,000 tons in 2023 throughout the year, excluding this part of the unconventional off-balance sheet demand, the demand for manganese silicon in 2023 decreased by 1.57% compared with 2022.

It is reported that the downstream demand for ferrosilicon is relatively dispersed, mainly including steel demand (five major materials + non-five major materials demand, accounting for 55%-60%), metal magnesium demand (12%-14%), export demand (6%-8%), stainless steel demand (6%-8%), casting demand (8%-9%) five major parts.

Dong Xueshan, senior analyst of ferroalloy of Zhongtai Futures, told reporters that the steel demand part, according to the research situation, the single consumption of rebar and wire ferrosilicon in the five major materials is high, and the single consumption of non-five major materials is high. It is estimated that the demand for ferrosilicon steel in 2023 will be 2.92 million tons, a decrease of 19,000 tons from 2022, a decrease of 0.65%.

Metal magnesium demand part, Shaanxi is the core production area of metal magnesium in China, the output accounted for more than 60%, the local metal magnesium with orchid carbon and 75 ferrosilicon together form a circular industrial chain, and by the end of March 2023 Yulin City to eliminate a single furnace production capacity of less than 75,000 tons of orchid carbon device, supporting metal magnesium had to be shut down synchronously, starting from May 2023, The national magnesium metal production declined for 5 consecutive months, and the annual magnesium metal production contracted by 18.68%.

In the first half of 2022, affected by the conflict between Russia and Ukraine, domestic ferrosilicon exports broke out, with an increase of nearly 200% in individual months compared with the same period in 2021, and from the second half of 2022, exports gradually returned to the constant, and the whole year of 2023 was basically flat in 2021, but it is expected to reduce by 40% compared with 2022; In the stainless steel demand part, the overall stainless steel production in 2023 is stable, and the demand for ferrosilicon in the stainless steel link has increased slightly by 1.93% compared with 2022. Combined with the above data, it is estimated that the comprehensive non-steel demand for ferrosilicon in 2023 will be reduced by 17.39% compared with 2022, which is the main factor dragging down the demand for ferrosilicon.

“After New Year’s Day in 2024, a new round of steel bidding and procurement has been carried out, but the price of ferroalloy is weak, and the boost to replenishment is limited.” Taking Hesteel Group as an example, the purchase volume of ferrosilicon and manganese-silicon in January and February 2024 was 2656 tons and 24,300 tons, respectively, which was slightly increased from the previous month, but still declined year-on-year.

At present, the stock days of iron silicon and manganese silicon in steel mills are 19.48 and 19.8 days, respectively, at the lowest level in 6 years, and the same period in previous years are 22-24 days. Affected by the seasonal off-season, the weekly production of the five major materials of steel Union statistics has declined for five consecutive weeks, and the daily production of molten iron has always been hovering at a low of 2.2 million tons, which restricts the short-term demand performance of ferroalloys as a whole.” Central Plains futures ferroalloy and building materials researcher Peng Bohan said.

The Inventory of Ferroalloys Increased

Ferroalloy online data show that the cumulative supply of manganese silicon in 2023 is 11.9402 million tons, an increase of 1.57365 million tons from 2022, an increase of 15.18%. The corresponding demand for manganese silicon is 10.717 million tons, an increase of only 22,900 tons, or 0.21%, compared with 2022. Considering the centralized replenishment of manganese silicon by downstream steel mills at the end of 2023, the accumulated surplus of manganese silicon in 2023 is nearly 1 million tons.

In terms of inventory structure, the whole society inventory of manganese silicon shows the characteristics of concentration to the middle and upper reaches. According to the statistics of the steel Union, as of mid-January 2024, the inventory of 63 manganese silicon sample enterprises in the country is 180,300 tons, higher than the level of the same period in previous years. In terms of delivery warehouse, as of January 19, registered warehouse receipts and effective forecasts totaled 26,475, which was at a historical high. In terms of downstream steel mills, affected by the replenishment behavior before the Spring Festival, the available days of manganese silicon inventory in steel mills in January 2024 rose to 19.8 days, combined with the current monthly production of 850,000 to 900,000 tons, steel manganese silicon inventory theoretically is 550,000 to 600,000 tons.

“Steel mill inventory available days from the beginning of 2023 22.7 days oscillating down, even if the inventory available days in January 2024 than in December 2023 there is a larger increase, but this increase is due to seasonal just need to replenish inventory, and 19.8 days of inventory available days than in previous years is still at the lowest level in history.” On the whole, the social inventory structure of manganese silicon is concentrated in the middle and upper reaches.” Dong Xueshan said that in 2023, the supply is strong and the demand is weak throughout the year, manganese silicon is in a surplus pattern, and the availability of inventory in downstream steel mills continues to decrease, which aggravates the excess problem in the manganese silicon market.

“At present, the dominant inventory of manganese silicon market is more than 300,000 tons. Referring to the situation in the past five years, both price increase and price reduction have occurred, and after inventory reduction, supply and demand have returned to a relatively balanced state. But 2023 will be different. In March 2023, due to the narrowing of profits, manganese silicon production was reduced, but the production reduction period was short.” Said Li Xiaochen, senior analyst of ferrous metals at State Investment Anxin Futures.

As for the accumulation of manganese silicon inventory, Li Xiaochen believes that it is mainly affected by weak demand and downward costs. The weak demand is reflected in the poor profits of steel mills, the stocking time of auxiliary materials is shorter, and the enthusiasm of active replenishment is not high, which also indirectly affects the price of manganese ore. In fact, manganese mines prefer to look beyond manganese silicon directly at steel mill production levels. The quarterly report of the mine shows that globally, in addition to India to maintain a high positive growth, the steel production of other major carbon steel producing countries or consortia are weak. The decrease in the price of manganese ore leads to the decrease in the cost of manganese silicon, which in turn acts on the manganese ore. Under the pattern of strong supply and weak demand, the production end reduced and stopped production in a large area, but later, in June 2023, stimulated by additional demand, the production enthusiasm increased, but the excessive inventory in the early stage suppressed the price, which is the main reason for the further accumulation of manganese silicon inventory. So far, the demand for manganese silicon has not improved significantly, the mine production reduction is not large, and the market oversupply is obvious.

The Price of Raw Materials of Ferroalloys Is Changing

In fact, the price trend differentiation of ferroalloy raw materials can be divided into two categories: regional differentiation and variety differentiation. Regional differentiation refers to the north-south divergence of electricity prices. The variety differentiation is further divided into two directions, one is the expected price trend differentiation of manganese ore and chemical coke at the cost end of manganese silicon, and the other is the expected cost differentiation of iron silicon and manganese silicon due to the expected price trend differentiation of manganese ore and coal measures products.

At present, the production of industrial enterprises in China is still dominated by thermal power, although the layout of more and more new energy supporting facilities in some areas, but in the next 3-5 years, in addition to Inner Mongolia, the rest of the new energy power generation areas are unstable, not sustainable and other problems, firepower cost is still the most important power cost consideration. The northern production area is located in the coal accumulation area, rich thermal power resources, power supply by the national grid; The southern producing regions of Guangxi and Guizhou are supplied by China Southern Power Grid. Due to the difference in resources, the thermal power cost of the northern and southern producing areas is different, and the maximum power cost difference of manganese silicon production is 960 yuan/ton.

According to Dong Xueshan, manganese ore and chemical coke are expected to differentiate at the cost of manganese silicon. Manganese ore has maintained a unilateral downward trend since March 2023, while chemical coke has oscillated since the second half of 2023. The current price of manganese ore has fallen to the low level before 2020, and UMK, the fourth largest manganese miner in South Africa, announced on January 2, 2024 that it may reduce the production of manganese ore in the future. In addition, with the new manganese silicon production capacity declared by Inner Mongolia in the next 2-5 years, the demand for manganese ore will usher in a substantial increase. According to ferroalloy online statistics, the annual import of manganese ore in 2023 is 29.1 million tons, the consumption is 27.9 million tons, and the excess manganese ore can be consumed as long as the increase of 600,000 tons of manganese silicon. At present, the valuation of manganese ore is at a historical low, and the upper space is much larger than the lower space in the long period. In terms of chemical coke, with the continuous promotion of “stable supply and price”, the price of coal measures products is in the downward channel for a long period. Therefore, the price trend of manganese ore and chemical coke is expected to differentiate, and the direction of differentiation is opposite to that of 2023.

Futures Daily reporter found that iron silicon and manganese silicon due to manganese ore and coal measures product price expected trend differentiation caused by cost expected differentiation. Manganese ore is expected to push up the price of manganese silicon, and coal measures including chemical coke, charcoal and even thermal power have the possibility of a long period of continuous decline. In addition, with the continuous improvement of new energy installed capacity and supporting energy storage in Inner Mongolia, the future will truly realize the purpose of using new energy power generation to cut peak and fill valley for large industrial electricity, and at the same time, it can also use the advantage of low cost of new energy power generation to fundamentally reduce the smelting cost of local ferroalloy products, thus promoting the concentration of ferroalloy production capacity in Inner Mongolia. Finally achieve the purpose of the whole industry to reduce costs and increase efficiency. Since the power consumption of ferrosilicon per ton is about twice that of manganese silicon, the smelting cost of ferrosilicon and manganese silicon has a further differentiation trend from the perspective of the expected price trend of coal measures products and the cost of power, that is, the smelting cost of ferrosilicon returns to the level lower than that of manganese silicon.

“From the perspective of the cost of ferrosilicon, the proportion of blue carbon is also higher. The price of coal is highly correlated with the price of thermal coal, which basically follows the trend of thermal coal. Thermal coal prices in the context of “guaranteed supply”, the overall price fluctuation is low compared with previous years, although the price remains high after entering the heating season, but it is reasonable. The price of coal also remained at a high level, although the profit of ferrosilicon smelting is not good, but the price of coal has not been significantly lowered to make profits, mainly because the thermal coal price is in the seasonal high period, which has a significant boost to the price of coal.” “Mr. Li said.

The Energy Cost of Ferroalloys

Downstream demand can not undertake the current double silicon supply, the ferroalloy market is showing a surplus pattern, industry profits continue to compression, in addition to Inner Mongolia still have a certain profit, the rest of the producing areas are in or about to fall into a loss predicament.

“It is estimated that as of mid-January 2024, among the mainstream producing areas, only Inner Mongolia double silicon manufacturers still have a certain profit, some high-cost iron silicon manufacturers in Ningxia have suffered losses of less than 100 yuan/ton, Ningxia manganese silicon manufacturers have a theoretical loss of more than 300 yuan/ton, and the south, taking Guangxi as an example, manganese silicon producing areas 6517 grade manganese silicon have suffered losses for nearly 1 year. Most local companies rely on the production of 6014 grade manganese silicon to maintain the production rhythm, and individual companies are also reducing their own smelting costs through waste heat power generation and other ways.” Dong Xueshan said.

Li Xiaochen told the Futures Daily reporter that the loss of iron silicon and manganese silicon smelting plants are concentrated in relatively high cost areas, according to daily tracking, mainly in Inner Mongolia, Ningxia and Guangxi. Specifically, manganese silicon production losses are mainly small and medium-sized factories in Ningxia and Guangxi, and iron silicon production losses are mainly in Ningxia. That is, in addition to Inner Mongolia, there are basically losses, which is behind the weak market demand, poor industrial profits, and the deeper reason is that the price difference between Inner Mongolia and other producing areas is too large.

Dong Xueshan introduced that the smelting loss of ferrosilicon is less than that of manganese silicon, and the representative loss producing areas are Ningxia, Qinghai and Shaanxi. Since 2023, Ningxia’s immediate losses have been concentrated in the end of the second quarter of 2023 and the fourth quarter of 2023 so far. At the end of the second quarter of 2023, the factory cost of some ferrosilicon manufacturers in Ningxia is high, and the cost of carbon in some manufacturers in Zhongwei area is more than 1000 yuan/ton, and the related electricity recovery penalty also increases the production cost of enterprises. With the recovery of ferrosilicon smelting profits in the third quarter of 2023, the industry-wide operating rate oscillated upward, as of the end of November that year, the national monthly production of ferrosilicon returned to the peak of 492,800 tons, but the downstream demand was depressed, and the new production in Inner Mongolia is expected to increase excess concerns, and the current price of ferrosilicon continued to decline. As of mid-January 2024, without considering the situation of waste heat power generation, some high-cost and high-per-unit consumption ferrosilicon manufacturers have experienced losses within 100 yuan/ton.

According to enterprise personnel, the actual smelting cost of Qinghai in the first half of 2023 is high, resulting in three reasons for production losses in the first half of 2024 also have the possibility of recurrence. First, the settlement fee is high. Due to weather reasons, clean energy such as hydropower and wind power start slowly, the proportion of clean energy (excluding green electricity) is not high, the overall power supply shortage, the actual settlement electricity bill can not float. Second, the cost of blue carbon is high. Qinghai market carbon freight is higher than Zhongwei 100 yuan/ton. Third, the high single consumption increases the cost of electricity. The single consumption of smelting ferrosilicon in the peak avoidance production state is increased, and the 6-hour single consumption of enterprises with waste heat power generation is 8300-8700 degrees.

“Manganese silicon industry, southern producing areas affected by high electricity prices continue to lose money. Southern production areas include Guangxi, Yunnan, Guizhou and other places. Yunnan’s production is mainly hydropower, in addition to the annual rainy period from June to October as low as 0.35 yuan/KWH of electricity, the rest of the production of small profits or even losses, which is also Yunnan’s operating rate has obvious seasonal reasons. Guangxi and Guizhou are mainly affected by high electricity prices and losses, Guangxi’s electricity price is 0.63 yuan/KWH, Guizhou’s electricity price is 0.5-0.54 yuan/KWH, and the power cost of manganese silicon smelting is 440 to 960 yuan/ton higher than that of the north.” Dong Xueshan said.

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