Viewpoint: Mn metal supply to pressure US FeMn prices

Weak electrolytic manganese metal prices are expected to counter tightening supplies of medium-carbon ferro-manganese in 2020.

Market participants expect prices for medium-carbon ferro-manganese to remain under pressure heading into early 2020 as the alloy's average discount to electrolytic manganese fell to an 11-year low of 6¢/lb in 2019, down from a 27¢/lb average in 2018.

Spreads have averaged 32¢/lb on a yearly basis since Argus began assessing the metal and alloy in 2003.

Typically, electrolytic manganese is used in the production of specialty grade steels and aluminum alloy that require a low amount of residual content, like automotive steel and wide diameter piping. Still, the metal replaces medium-carbon alloy for steel grades that are less stringent, when prices allow.

Additionally, some consumers blend the two products together in order to keep costs lower but also draw as much on lower-priced medium-carbon ferro-manganese.

Market participants expect that added consumption of metal from steel producers will not offset abundant US and offshore supplies, with the weak metal market placing a ceiling on alloy for at least the first half of 2020.

The restart of some key electrolytic metal production facilities in China has contributed heavily to a US oversupply of metal, putting downward pressure on prices and a ceiling on refined alloy prices as a result.

Manganese metal output increased by 8pc to 1.4mn tonnes (t) in the first 10 months of 2019 from a year earlier, according to the International Manganese Institute. US imports of unwrought manganese in any form increased by 57pc to 33,969t over the same period, according to US trade data.

At the same time refined ferro-manganese production fell by 11pc to 132,000t, and US imports of medium-carbon ferro-manganese decreased by 43pc to 48,304t over the same period.

Weak demand for automotive steel and aluminum wire and rod amid an oversupply of manganese metal in the US suggests the price will see upward momentum in the near term. US automotive production declined by 8.4pc in the first 10 months of the year from the year earlier period, partially exacerbated by the United Autoworkers strike against General Motors in September and October, according to Federal Reserve data.

US steel mills are expected to increasingly consider metal purchases over medium-carbon ferro-manganese, but sources are skeptical the added demand would support wider spreads.

Market participants expect that only production cuts from Chinese manganese metal producers or a decline in US imports would open the US up to a reduction in inventories, which is contingent on US steel and aluminum producers maintaining demand to draw down stocks.

The oversupply of manganese metal as a lower-priced substitute or blending material will diminish the upward pressure on medium-carbon alloy prices resulting from a shrinking supply, as consumers opt to purchase smaller volumes of medium-carbon alloy altogether.

By Nicholas Bell