Tight Mg supplies ease, market remains uneasy

US magnesium market participants surveyed by Argus broadly expect prices to decline in the long term on easing supply constraints but were hesitant to book long term deals amid wider market uncertainties.

US Magnesium, the largest producer of magnesium metal in the country, declared force majeure on its production in September 2021 but has subsequently provided few details on the origin of the outage. Nonetheless, the force majeure cut into supplies noticeably, prompting at least one consumer, Kaiser Aluminum, to declare a force majeure at its Warwick facility because of a lack of deliveries from the company.

Kaiser returned to normal production after finding alternative suppliers and does not expect to receive any more shipments from US Magnesium under its current supply contract. Outside of the Kaiser force majeure, market participants surveyed by Argus have received few indications about when the major domestic supplier will return and have had to plan around the outage based on what limited indications they have received.

The supply shortage induced by the US Magnesium force majeure fostered the conditions that allowed for a spike in Chinese imports despite anti-dumping tariffs as well as the return of Russian imports in July after tariffs increased following the Russian invasion of Ukraine in late February.

US Magnesium did not return Argus inquires on when it planned to return to production.

During the supply crunch, Argus prices for 99.9pc grade magnesium in the US rose to an all-time high of $19,842-22,046/t ($9-10/lb) in the 5 April assessment from $4,850-5,071/t on 7 September 2021 prior to the force majeure. Magnesium prices have declined from these all-time highs to still atypically high levels of $13,228-15,432/t on the 30 August assessment where they have since remained.

Alternative sources of the metal have also been tough to come by for domestic consumers. Since February, US buyers have been hesitant to purchase magnesium from typically larger supplier, Russia, because of the war in Ukraine, which has led to increased tariffs. The US imported 2,084t of primary magnesium from Russia in the first quarter of 2022, up from 1,576t a year earlier but only 236t in the second quarter, down from 1,177t in the same quarter of 2021, according to Commerce Department data.

Still, there are some signs that the widespread tightness has pushed importers to return to Russian suppliers as inbound volumes into the US from the country rose to 661t in July, up widely from 189t in July 2021.

The US rally also coincided with a wider global surge in prices starting in September 2021. Magnesium producers at the time in the Fugu region of China were forced to cut production as part of energy control measures by the government. Argus prices for 99.9pc magnesium FOB China peaked at $10,000-10,600/t on 23 September 2021 compared to $4,700-4,760/t at the start of September 2021.

European consumers, who are more reliant on Chinese magnesium than those in the US, were forced to pay higher prices to maintain supplies. The magnesium du Rotterdam price peaked at $9,000-10,300/t in the 23 September 2021 assessment compared with $4,575-4,675/t on 1 September 2021 prior to the supply crunch.

Prices in both regions started to fall in February as magnesium production returned in China and the supply crunch in Asia and Europe eased. Argus prices for 99.9pc magnesium fell to $3,470-3,530/t in China in the 29 September assessment compared to their all-time highs of $10,000-10,600/t.

While prices declined in other regions, US prices have fallen at a slower pace as the domestic production picture remained uncertain and the high cost of sea freight shipping alongside tariffs on Russia and China cut off external sources of metal.

As these prices eased over the first half of 2022 and sea freight shipping declined, it became economically viable to import Chinese metal. From May through July 2022, the US imported 1,369t of primary magnesium from China after only importing 427t total from the country in the last five years. US market participants do not typically import primary magnesium from China as the US imposed anti-dumping tariffs upwards of 141.49pc on primary magnesium from the country.

Still, these sources indicated that under the current conditions they expect supply constraints to ease and for domestic prices to move lower in the long term, despite ongoing uncertainties surrounding US Magnesium's production situation.

This uncertainty has made them more hesitant to sign off on long-term agreements without knowing what domestic production will be like in a year.

By Andrew Saucer