Viewpoint: Mn volatility underscores China dependence

The world's dependence on China for manganese supply has been underscored in recent weeks with the outbreak of the coronavirus, highlighting risks attached to a shortage of diverse metals supply chains.

The market has been extremely volatile since Chinese workers returned home for the lunar new year holiday in late January, only to find they could not return as the virus swept the country. Many were quarantined and there were extensive travel restrictions in place.

Extended output halts at a number of Chinese producers followed, as well as difficulty getting material to ports and withholding of already sold material by Chinese traders. Prices skyrocketed. Manganese flake prices rose to $2,250-2,400/t on 12 February, when lockdown measures were at their height in China. As the country reopened some roads and workers returned home, prices plummeted to $1,700-1,760/t.

A market prone to supply shocks

This is not the first time the manganese flake market has been subjected to economic shocks in Asia. Prices rose to above $3,000/t in 2018 when China implemented stringent environmental controls to achieve its yearly pollution targets. At the time, the country's largest producer Ningxia Tianyuan Manganese Industries (NTMI) was unaffected by the environmental cuts, but reduced its monthly production by 15,000t because of equipment failures.

To many in the market, this China-centric supply chain has become unsustainable, but they know they are trapped. Manganese metal production was 1.6mn t in 2018, of which more than 95pc was in China. To steel producers in Europe, this may become hard to bear as they try to clean up their carbon-heavy supply chains.

"The European steel industry has the ambition to reduce emissions by 30pc by 2030 compared with today's levels – in addition to the reductions achieved since 1990 – and by 80-95pc by 2050," European Steel Association (Eurofer) director general Axel Eggert said. "This means support for R&D… and a level playing field with less climate-ambitious global competitors."

The EU will create carbon borders between the EU and more polluting third countries. This could help the steel industry to compete with steel imports, but the cost of materials such as manganese could increase because there is no alternative to high polluting markets.

Critical for battery supply chains

Manganese is becoming increasingly important to battery makers. The dominance of NMC battery chemistries over the next few years will provide an extra dimension to manganese demand. There are a number of companies producing high-purity manganese and battery-grade manganese sulphate.

Hunan Huitong, Citic Dameng, Shenzheng Pengcheng Redstar, Guizhou Dalong Huicheng and Xiangtan Electrochemical Scientific make up the bulk of global manganese sulphate supply. There is only one producer in Europe - Belgium's Prince Minerals - and one in Japan - Isky Minerals. Every other major producer is in China.

But there are plans for more. Euro Manganese, a tailing reclamation project in the Czech Republic, plans to produce high-purity manganese for the battery industry. The project has started to produce samples at a demonstration plant and is expected to begin ramping up in the next two years. It is also part of the European Battery Alliance.

Another project, Element 25 in Australia, is in its pre-feasibility study phase. Both of these are limited to battery-grade manganese, and will not provide any solutions to the steel industry.

Manganese is just one example of critical minerals that are totally reliant on Chinese supply chains. The world is reliant on China for magnet alloys using rare-earth minerals, cobalt chemicals and battery precursor materials, magnesium, vanadium, zirconium, cadmium, indium, tellurium and many other minor metals with specialty applications. That is just in metals.

It is likely that the coronavirus outbreak will force governments and private-sector businesses to take a deep look at their supply chains. Medical companies are already doing it in the face of an emergency. Downstream consumers of metals in the automotive, technology and construction industries would do well to do the same. But they may look and find that "decoupling" China from their supply chains will be much harder than it now seems.

By Thomas Kavanagh