China's metals markets are expected to come under pressure in the coming weeks from rising supplies following production restarts and weaker demand from downstream sectors, amid a fall in the country's official factory purchasing managers' index (PMI).
China's manufacturing PMI for February fell to a historic low of 35.7 from 50 in January, much lower than expected, reflecting the deep slump in manufacturing activity in the country because of the coronavirus outbreak. A PMI reading below 50 signals a sectoral contraction, while above 50 shows an expansion.
Metals demand from the main downstream sectors, including real estate, lead-acid battery, air-conditioners and electronics, has been affected by the coronavirus crisis as many manufacturers have delayed resuming operations, according to China's nonferrous metals industry association (CNIA).
Prices for most metals have softened in the past week after more smelters resumed operations following a recovery in logistics services. Local governments in many regions have given approvals to producers to resume output as the impact of the coronavirus outbreak eases.
China reported 128 new confirmed coronavirus cases today, according to government figures, compared with over 15,000 on 12 February. The number of patients being treated has fallen to around 30,000.
Rare earths
Operating rates at light rare earths producers in north China have risen to around 80-90pc, with more producers expected to resume regular run rates in mid-March. Prices for light rare earths have softened in response to the rise in supplies and lower demand because of lower operating rates in the magnet manufacturing sector.
Medium and heavy rare earths prices are on the rise because of comparatively lower operating rates. Producers in Guangdong and Guangxi province are operating at 60-70pc of capacity, while run rates in Jiangxi province are around only 50pc. Supply disruptions of ore imports from Myanmar (Burma) caused by the coronavirus outbreak have also supported the uptrend.
Magnesium
Operating rates in the industry are estimated to have increased to around 70pc from 50-60pc following output resumptions at main producers including 20,000 t/yr Shaanxi-based Fugu Jinchuan and another 50,000 t/yr producer in the same region. This has caused spot 99.9pc grade metal prices to fall by 5pc in the past two weeks.
Manganese
Production restarts at main producers, including Kingray with a 60,000 t/yr capacity and Zunyi Tianchi with a 50,000 t/yr capacity, have weighed on the manganese market.
General operating rates in the industry have resumed to 50-60pc, according to Argus estimates. This has pushed down spot flake prices by nearly 9pc from mid-February.
Tungsten
Some 66 facilities out of 77 member units have restarted production after regional travel controls were lifted, with 70pc of equipment now in operation and 74pc of the labour force resuming work, the China tungsten industry association said today. Operating rates in the tungsten industry are expected to reach 90pc in the short term.
Antimony
Limited feedstock availability and renewed buying interest from consumers pushed prices up sharply in mid-February when large-scale producers were operating at 20-30pc run rates amid limited labour.
Operating rates have recovered to around 50pc this week, with more smelters in the key Lengshuijiang production hub likely to restart production later this month.
Ferro-alloys
Operating rates in the ferro-molybdenum sector are estimated to have risen to around 50-60pc from 40pc, with spot prices falling by 11pc from mid-February as a result of the rise in supplies and weaker demand from the steel industry.
Ferro-silicon smelters are running at 60pc of capacity because of production limits in some regions during the winter heating season typically from December to March. Run rates in the ferro-chrome sector have increased to around 65pc from 40-50pc.
Base metals
Most base metal producers have maintained normal production during the coronavirus crisis, although demand from the downstream sectors has weakened.
Copper producers are operating at an 81.5pc rate as of 26 February compared with 87.6pc at aluminium smelters and 80.2pc at zinc/lead producers, CNIA data show. The organisation has appealed to the government to launch a national stockpiling drive to prevent inventories at metal smelters from rising rapidly and prices from falling significantly.
Export markets
China's metal exports, in particular for antimony and tungsten, are poised to fall in the coming weeks as the coronavirus crisis worsens in many countries outside of China.
These countries could follow China's preventive measures and prompt manufacturing companies to shut down to contain the spread of the virus, reducing metals demand.
