Mg prices surge on coal costs, tight supply: Update
Updates lead and adds detail about European reaction
Global magnesium prices have climbed sharply this week on rising feedstock costs, with steep hikes in the Chinese market quickly filtering across to Europe where a year of sluggish demand has led to traders maintaining low inventories, leaving them more exposed to potential supply tightness and in need of top-ups (see chart).
Chinese domestic prices for 99.9pc grade magnesium metal hit a 12-year high of 21,500-21,900 yuan/t ($3,359-3,422/t) ex-works today, up by Yn4,200/t from 6 May. Chinese export prices were assessed at $3,430-3490/t fob today, a new 12-year high, up by $670/t since 6 May when prices were $2,760-2,820/t. Prices in Europe also rose sharply to $3,400-3,600/t, their highest level since November 2008, in the middle of the global financial crisis.
Coal prices have been steadily rising for the past two months, but surged this week after the Chinese administration said it had ceased economic dialogue with Australia because of diplomatic tensions. Safety inspections at mines in Shanxi and tight supply from Inner Mongolia also added to the problem. Argus assessed prices for 62 CSR metallurgical coke at $442.50/t fob China on 12 May, up by $58.75/t from a week earlier. Prices for premium hard low-volatile coking coal are at Yn1,720/t del north China, having risen steadily from Yn1,480/t on 20 April.
Thermal coal futures dipped today after Chinese premier Li Keqiang said at a state council meeting on 12 May that Beijing will work to cap excessive rises in bulk commodity prices to maintain stable economic development. But overall, China's physical coal complex remains supported by tight fundamentals.
Meanwhile, offers for ferro-silicon — another key feedstock for magnesium metal — also moved down by Yn100-200/t today. Prices had risen in previous weeks because Inner Mongolia and Ningxia introduced energy control measures and there were environmental inspections in Qinghai province.
Price hikes filter through to Europe
European traders lifted their offers sharply this week as the steep China hikes filtered through. One European trader received an offer at $3,400/t fob Tianjin on 12 May, having bought 500t last week at the significantly lower price of $2,675/t fob Tianjin. Meanwhile, a southern European trader received two offers this week for material coming from north China ports, one at $3,450/t fob and another at $3,510/t fob.
A third trader offered material at $2,800/t in warehouse Rotterdam on 4 May, but when the customer responded this week to finalise a booking they had to raise their bid to €3,100/t ($3,750/t), although the deal had been done by the time Argus went to press.
Some market participants have criticised the scale of this week's price hikes, saying the increases are too sharp given underlying supply-demand fundamentals. But most expect European prices to keep rising next week as offers of material coming from China continue to climb.
For the past few months, most of the magnesium spot trade in Europe has been on a back-to-back basis, with traders keeping warehouse inventories fairly low because regional demand has been fairly low over the past year and it is difficult to store magnesium metal for long periods of time. Given stocks are so low, supply tightness is likely to become more acute in Europe if demand from the aluminium industry continues to ramp up as Europe emerges from its latest lockdown restrictions.
Strong Chinese demand lifting commodity prices
The Chinese bulk commodity market sustained its growth in April. The China Bulk Merchandise Index, a gauge of growth in the domestic bulk commodity market, stood above the boom-or-bust line of 100pc at 103.3pc last month, according to data from the China federation of logistics and purchasing. The index has risen for four consecutive months, indicating a stable and growing domestic bulk commodity market.
China's main economic planning agency the NDRC, the State Administration for Market Regulation and the Tangshan municipal government launched inspections at local steelmakers to urge them to maintain market discipline after Li's remarks. Spot steel prices fell in response by around Yn400/t today.
Tangshan city in the northern Hebei province is China's key steel production hub. The steel industry is one of the main consumption sectors for magnesium.
Prices for aluminium, another downstream product, have also declined. May contracts on the Shanghai Futures Exchange (SHFE) closed at Yn19,350/t today, down by Yn390/t from yesterday.
Producers in Shaanxi province, the largest magnesium production hub in China, use waste gas from their semi-coking coal production to heat magnesium metal furnaces. About 5-6 equivalent tonnes of coal and 1.1t of ferro-silicon are consumed to produce one tonne of magnesium metal.
Sentiment in the spot market, previously shored up by futures prices in the past week, has weakened. Magnesium producers have not raised their offers today, keeping them unchanged from yesterday at Yn22,000/t following the fall in coal prices. Market activity has also slowed today, with only a few deals concluded at Yn21,500/t and most buyers monitoring the direction of prices.
Related news posts
Evion-Metachem Indian project starts producing graphite
Evion-Metachem Indian project starts producing graphite
Singapore, 2 May (Argus) — Australian graphite producer Evion's joint venture with Indian producer Metachem Manufacturing has produced and sold 700kg of expandable graphite, with more output planned in the coming months, after missing its timeline last year. Capacity of the expandable graphite plant, located at Kurkumbh near the west Indian city of Pune, will increase to at least 1,800 t/yr over the coming months, said Evion in its latest quarterly activity report. The agreement between the two firms originally envisioned 2,000-2,500 t/yr of production capacity in the first three years, with plans to begin an expansion to double the capacity starting from the second year. Evion previously was expecting first production in October-December 2023. Evion, formerly known as BlackEarth Minerals, back in 2021 signed an offtake deal with Austrian downstream graphite firm Grafitbergbau Kaiserberg for up to 2,500 t/yr of expandable graphite. Graphite concentrate for the plant is expected to come from external parties in the first two years of operations, subsequently switching to products from its Maniry graphite project in Madagascar, said Evion. Madagascar's national office for the environment is carrying out the environmental and social impact assessment for the Maniry project, according to Evion. India in July 2023 identified 30 critical minerals necessary to its green energy transition and energy self-reliance, including graphite. The country's mines ministry, through state trading firm MSTC, in March launched the second round of its auction , involving 18 blocks, for development of critical and strategic minerals in the country. By Joseph Ho Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
US southbound barge demand falls off earlier than usual
US southbound barge demand falls off earlier than usual
Houston, 1 May (Argus) — Southbound barge rates in the US have fallen on unseasonably low demand because of increased competition in the international grain market. Rates for voyages down river have deteriorated to "unsustainable" levels, said American Commercial Barge Line. Southbound rates declined in April to an average tariff of 284pc across all rivers this April, according to the US Department of Agriculture (USDA), which is below breakeven levels for many barge carriers. Rates typically do not fall below a 300pc tariff until May or June. Southbound freight values for May are expected to hold steady or move lower, said sources this week. Southbound activity has increased recently because of the low rates, but not enough to push prices up. The US has already sold 84pc of its forecast corn exports and 89pc of forecast soybean exports with only five months left until the end of the corn and soybean marketing year, according to the USDA. US corn and soybean prices have come down since the beginning of the year in order to stay competitive with other origins. The USDA lowered its forecast for US soybean exports by 545,000t in its April report as soybeans from Brazil and Argentina were more competitively priced. US farmers are holding onto more of their harvest from last year because of low crop prices, curbing exports. Prompt CBOT corn futures averaged $435/bushel in April, down 34pc from April 2023. Weak southbound demand could last until fall when the US enters harvest season and exports ramp up southbound barge demand. Major agriculture-producing countries such as Argentina and Brazil are expected to export their grain harvest before the US. Brazil has finished planting corn on time . unlike last year. The US may face less competition from Brazil in the fall as a result. Carriers are tying up barges earlier than usual to avoid losses on southbound barge voyages. Carriers that have already parked their barges will take their time re-entering the market unless tariffs become profitable again. The carriers who remain on the river will gain more southbound market share and possibly more northbound spot interest. By Meghan Yoyotte and Eduardo Gonzalez Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
US Fed signals rates likely to stay high for longer
US Fed signals rates likely to stay high for longer
Houston, 1 May (Argus) — Federal Reserve policymakers signaled they are likely to hold rates higher for longer until they are confident inflation is slowing "sustainably" towards the 2pc target. The Federal Open Market Committee (FOMC) held the federal funds target rate unchanged at a 23-year high of 5.25-5.5pc, for the sixth consecutive meeting. This followed 11 rate increases from March 2022 through July 2023 that amounted to the most aggressive hiking campaign in four decades. "We don't think it would be appropriate to dial back our restrictive policy stance until we've gained greater confidence that inflation is moving down sustainably," Fed chair Jerome Powell told a press conference after the meeting. "It appears it'll take longer to reach the point of confidence that rate cuts will be in scope." In a statement the FOMC cited a lack of further progress towards the committee's 2pc inflation objective in recent months as part of the decision to hold the rate steady. Despite this, the FOMC said the risks to achieving its employment and inflation goals "have moved toward better balance over the past year," shifting prior language that said the goals "are moving into better balance." The decision to keep rates steady was widely expected. CME's FedWatch tool, which tracks fed funds futures trading, had assigned a 99pc probability to the Fed holding rates steady today while giving 58pc odds of rate declines beginning at the 7 November meeting. In March, Fed policymakers had signaled they believed three quarter points cuts were likely this year. Inflation has ticked up lately after falling from four-decade highs in mid-2022. The consumer price index inched back up to an annual 3.5pc in March after reaching a recent low of 3pc in June 2023. The employment cost index edged up in the first quarter to the highest in a year. At the same time, job growth, wages and demand have remained resilient. The Fed also said it would begin slowing the pace of reducing its balance sheet of Treasuries and other notes in June, partly to avoid stress in money markets. By Bob Willis Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
G7 coal exit goal puts focus on Germany, Japan and US
G7 coal exit goal puts focus on Germany, Japan and US
London, 1 May (Argus) — A G7 countries commitment to phase out "unabated coal power generation" by 2035 focuses attention on Germany, Japan and the US for charting a concrete coal-exit path, but provides some flexibility on timelines. The G7 commitment does not mark a departure from the previous course and provides a caveat by stating the unabated coal exit will take place by 2035 or "in a timeline consistent with keeping a limit of 1.5°C temperature rise within reach, in line with countries' net-zero pathways". The G7 countries are Italy — this year's host — Canada, France, Germany, Japan, the UK and the US. The EU is a non-enumerated member. The announcement calls for accelerating "efforts towards the phase-out of unabated coal power generation", but does not suggest policy action. It calls for reducing "as much as possible", providing room for manoeuvre to Germany, Japan and the US. Coal exports are not mentioned in the communique. Canada and the US are net coal exporters. France, which predominantly uses nuclear power in its generation mix is already scheduled to close its two remaining coal plants by the end of this year. The UK will shut its last coal-fired plant Ratcliffe in September . Italy has ended its emergency "coal maximisation plan" and has been less reliant on coal-fired generation, except in Sardinia . The country has 6GW of installed coal-fired power capacity, with state-controlled utility Enel operating 4.7GW of this. The operator said it wanted to shut all its coal-fired plants by 2027. Canada announced a coal exit by 2030 in 2016 and currently has 4.7GW of operational coal-fired capacity. In 2021-23, the country imported an average of 5.7mn t of coal each year, mainly from the US. Germany Germany has a legal obligation to shut down all its coal plants by 2038, but the country's nuclear fleet retirement in 2023, coupled with LNG shortages after Russia's invasion of Ukraine, led to an increase in coal use. Germany pushed for an informal target to phase out coal by 2030, but the grid regulator Bnetza's timeline still anticipates the last units going offline in 2038. The G7 agreement puts into questions how the country will treat its current reliance on coal as a backup fuel. The grid regulator requires "systematically relevant" coal plants to remain available as emergency power sources until the end of March 2031 . Germany generated 9.5TWh of electricity from hard-coal fired generation so far this year, according to European grid operator association Entso-E. Extending the current rate of generation, Germany's theoretical coal burn could reach about 8.8mn t. Japan Japan's operational coal capacity has increased since 2022, with over 3GW of new units connected to the grid, according to the latest analysis by Global Energy Monitor (GEM). Less than 5pc of Japan's operational coal fleet has a planned retirement year, and these comprise the oldest and least efficient plants. Coal capacity built in the last decade, following the Fukushima disaster, is unlikely to receive a retirement date without a country-wide policy that calls for a coal exit. Returning nuclear fleet capacity is curtailing any additional coal-fired generation in Japan , but it will have to build equivalent capacity to replace its 53GW of coal generation. And, according to IEA figures, Japan will only boost renewables up to 24pc until 2030. The US The US operates the third-largest coal-power generation fleet in the world, with 212GW operational capacity. Only 37pc of this capacity has a known retirement date before 2031. After 2031, the US will have to retire coal-fired capacity at a rate of 33GW/yr for four years to be able to meet the 2035 phase-out deadline. By Ashima Sharma Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Business intelligence reports
Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.
Learn more