Viewpoint: Renewed demand to bolster Mg prices in 2021

Chinese magnesium (mg) metal prices may rise in 2021 in light of a recovery in consumer demand from the downstream aluminium and automotive industries.

EU aluminium producers have seen stronger buying interest, as users from the automotive, industrial machinery and packaging industries have renewed their contracts for the first quarter. Trading volumes for the first quarter of 2021 have risen compared with the fourth quarter of this year as aluminium consumers in Europe expect operational levels to recover to 80-90pc in the first quarter of 2021 compared with the first quarter of 2019.

This recovery in demand is expected to outweigh the rise in supplies to bolster prices in the first quarter of 2021, according to market participants.

China's domestic magnesium output rose by 12.74pc from a year earlier to 844,800t in 2019, data from the China nonferrous metals industry association show. The output is forecast to move higher in 2020 after many Shaanxi-based smelters ramped up their production prompted by wider profit margins from their in-house semi-coke production.

Weakening demand from the domestic and seaborne markets during the Covid-19 pandemic dragged Argus-assessed prices for 99.9pc grade metal to an average of 13,342 yuan/t ($2,028/t) from January-November, the lowest level since January 2016, and down by 16.75pc from a year earlier. Average prices have fallen below Yn14,000/t ex-works since the middle of March and have fluctuated in a range of Yn12,000-14,000/t since then.

Although the IMF in its latest World Economic Outlook report forecast the global economy to shrink by 4.4pc this year because of the Covid-19 pandemic, China showed a stronger emergence from the downturn, with its economic growth projected at 1.9pc this year and 8.2pc next year. The BOC Research Institute, established by Bank of China, expects China's GDP to grow by about 7.5pc in 2021, up from an expected 2.1pc growth this year.

China has provided stimulus packages to boost automotive sales, including increasing their license plate quotas for fossil fuel vehicles and lifting sales restrictions on new energy vehicles to encourage consumers to buy family cars. The government also launched a campaign to promote the use of automobiles in rural areas and trade-ins of used vehicles.

China's vehicle sales and production rose for a seventh consecutive month in October, supported by government policies and increased buying interest in private cars to avoid spreading Covid-19 by using public transportations.

Production in October rose by 11.1pc from a year earlier to 2.552mn units, with sales up by 12.5pc on the year to 2.573mn units, data from China's Association of Automobile Manufacturers show.

The growth in the automobile sector is expected to bolster demand for automotive parts and their metal feedstock, mg.

China's Society of Automotive Engineers (SAE) forecast that the use of magnesium alloy will increase in the long term in response to lightweight trends in the auto industry. SAE expects mg use to rise to 15 kg per vehicle this year from just 1.5kg in 2015, according to its roadmap to reduce 10pc of vehicle weight during this period. Usage is forecast to rise further, to 25kg, in 2025 with a weight reduction of 20pc.

Yulin Magnesium, set up by state-owned firms Shaanxi Investment and Shaanxi Yulin Energy in October, is building warehouses for a stockpiling drive in 2021 to help stabilise prices.

The yuan is expected to continue strengthening against the US dollar in 2021 as China has encouraged its enterprises to invest overseas after the Regional Comprehensive Economic Partnership free trade agreement was signed by 15 Asia-Pacific nations.

The yuan appreciated to 6.56 today against the US dollar, up from 6.98pc in January. Market participants expect the yuan to rise further in 2021, which may boost export prices for metals, including mg.

By Beijing staff