Supply woes hasten European 4Q metals contract talks

A growing number of European bulk alloy and manganese flake buyers have kicked off negotiations for fourth-quarter supply contracts several weeks earlier than usual because of long-standing supply tightness and shipping delays.

Some manganese flake buyers have been dipping into the market for fourth-quarter delivery since mid-June, frustrated after several months of severe shipping delays from China and ballooning freight costs. "People are defaulting on contractual commitments," a trader said, referring to a growing scramble for material as planned deliveries are cancelled and Rotterdam warehouses run low.

The flake talks have centred on both spot and term contract deliveries and exposed a steep backwardation in what is now a particularly illiquid spot market as some buyers are paying a steep premium to secure prompt supply. German mills have concluded tenders at $3,000-3,100/t du Rotterdam for fourth-quarter delivery, which compares with occasional prompt spot deals in excess of $3,700/t du Rotterdam.

Some bulk alloy buyers are also starting to follow suit, albeit others are still waiting until the more traditional late-July-August period to start negotiating fourth-quarter contracts. The occasional spot cargo of high-carbon ferro-manganese has already changed hands for November delivery, and in several areas the focus is firmly on term contracts.

A regional ferro-chrome seller whose fourth-quarter talks would normally start in August has already been approached by several customers "much earlier than normal". Customers are asking for the same quarterly volumes and discounts as before, but "they are dreaming" if they expect to achieve a repeat of previous discounts even though the European quarterly charge chrome benchmark is relatively high at $1.56/lb, he said, adding that price levels will be finalised on a case-by-case basis.

Last week, a trading firm in northwest Europe received its first approach from a ferro-chrome buyer wanting to initiate fourth-quarter discussions.

This year's fourth-quarter negotiations are further complicated by the disruption of seasonal price dynamics. European bulk alloy prices usually drift in July-August, softening as buyers carry out maintenance work and purchasing activity slows down. But so far, prompt spot prices are holding firm and, in some cases, rising, with ferro-silicon currently being offered at as high as €1,800/t ddp northwest Europe and silico-manganese offers seen as high as €1,650/t ddp, albeit without attracting much buying interest.

These rising offers come when European bulk alloy prices are already at unusually high levels, with Argus' ferro-silicon assessment currently at a record high of €1,710-1,770/t ddp and silico-manganese last assessed at €1,450-1,500/t ddp — its highest level since November 2008.

Offers for prompt manganese flake shipments are also pushing higher, although many buyers are sitting out and unwilling to engage at such high prices. A trader sold 25t late last week at $3,800/t du Rotterdam for prompt shipment and said he is now targeting as high as $3,900/t ddp. By comparison, at the lower end of the market, a buyer booked 50t of manganese flake late last week at $3,256/t ddp northwest Europe for delivery in August-September, underscoring how widely European flake prices are diverging depending on the counterparties, urgency of need and delivery period.

"People are caught in the middle," a market participant said. "No one would want to buy when prices are high and maybe at the top of the curve, but they also do not want to get stuck without material later in the year."

Supply-demand fundamentals show little sign of easing in the near term, with regional inventories of bulk alloys and manganese flake running low and global shipping delays continuing to cause havoc. Consumption remains fairly firm, with steelmakers and foundries calling up all of their scheduled contract volumes as planned. Some buyers are operating at higher rates than normal through summer, having carried out some maintenance during lockdown and keen to make up for lost tonnes.

By Ellie Saklatvala and Yusuf Khan