Small and scattered are the features for ferroalloy enterprises usually. In Chinese market, the direction of structural adjustment does not reach the expected result. Researchers in industry field believe that ferroalloy industry can accomplish high-quality development achievement eventually.
Demand for Ferroalloy is Down
Global economy have faced recession problem in recent years and the situation is not very optimistic. In order to solve this problem, every field have taken active measures more or less. Industry field is no exception. Plenty of steel mills have reduced the costs and improved the use efficiency of ferroalloy. Compared with iron ore and coke, costs and use of ferroalloy are relatively low. Profit in steel mill is poor and ferroalloy bear the brunt.
Nowadays, end user demand is in off-season. In order to relieve the inventory pressure, most of steel mills have to decrease the yield continuously. Unfortunately, a negative feedback is formed in the industrial chain. Production of hot metal downed drastically, prices for raw material fell sharply.
According to statistics from industry insiders, demand for ferrosilicon(FeSi) is weaker than manganese silicon(MnSi). Compared with 2022, demand trends for ferro silicon and manganese silicon are very different in 2023. From the perspective of iron silicon, outlook is not optimistic as a result of its decreasing trend in 2023. On the contrary, outlook for manganese silicon is relatively optimistic. It increased 0.2% approximately.
Generally speaking, downstream demand for ferrosilicon can be divided into 5 parts mainly:
Steel demand;
Casting demand;
Stainless steel demand;
Export demand;
Magnesium metal demand.
Including, steel demand occupied the largest proportion among these demands.
“A new round of procurement carried out after the New Year, price for ferroalloy at a low level and promote the replenishment is limited.” We take Hesteel Group as an example to expound. In January and February 2024, they procured about 2,650 MT and 24,300 MT for ferrosilicon and manganese silicon respectively. Notwithstanding it rose slightly compared with previous months, still declined year-on-year.
Average stock days are about 19.4 and 19.8 days for iron silicon and manganese silicon respectively at present. Unless you are industry insider, this data looks like normal at the first glance. While, if industry insiders look through this data, they will find that it is abnormal. According to the data in same period from previous years, stock days for these two products in steel mill plummet during the recent 6 years. Actually, it declined by 17% approximately.
Affected by regular off-season, weekly production of five major materials has decreased for consecutive 5 weeks. As for molten iron production, it has been hovered 2 million MT per day. It restricts the short-term demand.
Inventory of Ferroalloy Increased
The data of manganese silicon supply shows that total supply in 2023 is 12 million MT nearly. Compared with 2022, it rose by over 13%. Likewise, the corresponding demand for manganese silicon also increased.
When it comes to inventory, we have to talk about its structure, overall society inventory structure gathered to the middle and upper reaches. Till the middle of January 2024, manganese silicon inventory for 63 sample enterprises is higher than the same period all year around. As for downstream steel mills, it affected by replenishing the inventory before Chinese New Year (Spring Festival). And available days for manganese silicon inventory rose slightly to 20 days approximately in January 2024.
When we talk about a large amount of manganese silicon inventory remains, we ask industry insider for advice. He expresses that it affected by costs and demand. He believes that weak demand and decreased costs make inventory accumulated. Generally speaking, weak demand embodies poor profits of steel mills. The stocking time is shorter and downstream enterprises do not have very strong enthusiasm to replenish their stock.
Quarterly report of ore shows that it maintains increase drastically in the globe except for India. And steel production growth of carbon steel produced by other countries is lower. As of now, demand for manganese silicon does not have obvious improvement.
Price for Ferroalloy is Changing
Actually, two parts for price trend differentiation of ferroalloy raw material are regional and variety differentiation, respectively. Including, variety differentiation can be also divided into two directions further, on one hand, expected price trend differentiation for manganese ore and chemical coke. On the other hand, expected price trend differentiation for iron silicon and manganese silicon. While, regional differentiation refers to difference of electricity price between north and south region usually.
In the contemporary society, with the development of science and technology, more and more intelligent and new energy equipment emerged, industry field is no exception. In China, thermal power is still the major energy source for industrial enterprises, notwithstanding more and more new energy facilities are arranged in some area. In the future about 3-5 years, firepower cost is still the paramount cost consideration of local government except for Inner Mongolia Autonomous Region. Furthermore, at this stage, new energy power generation areas have some problems such as unstable, unsustainable and so on. Thus, this is the reason why firepower is still the main means of power generation in next 5 years. At the same time, north and south is also different. The northern production area is located in the place that accumulates plenty of coals. It enriches thermal power resources and is supplied power by National Grid. While, power of some southern production area is supplied by China Southern Power Grid. Thermal power cost is different between north and south, as a consequence of different resources.
Futures Daily correspondents looked for patterns and they found that expected cost differentiation for iron silicon and manganese silicon is caused by expected trend differentiation for manganese ore and chemical coke. Increased price for manganese ore push up the price for manganese silicon. What’s more, with the development of new energy technology, a lot of places start to install new energy facilities and support energy storage, especially Inner Mongolia Autonomous Region. It consummates capacity and storage step by step. Due to this reason we mentioned above, it will truly attain the goal that cut peak for a large amount of industrial electricity using by new energy power generation. Meanwhile, it can utilize the preponderance that costs of new energy power generation is low to solve the problem fundamentally that high smelting costs for ferroalloy products. Thus, these factors we mentioned promote the concentration of ferroalloy production capacity in Inner Mongolia Autonomous Region. Eventually, it accomplishes the achievement basically that reduce the costs and improve the efficiency in the overall industry realm. From perspective of electricity costs, it has a further differentiation trend for smelting costs of iron silicon and manganese silicon, that is, smelting costs of manganese silicon is higher than ferrosilicon.
Energy Cost of Ferroalloy
At present, downstream enterprises have a so weak purchasing enthusiasm that current silicon under oversupply condition. And ferroalloy market is in a surplus pattern, compressing industry profits consecutively. Inner Mongolia Autonomous Region still have a certain profit. Unfortunately, except for it, other production areas fall into a loss plight more or less.
Some industry insider told Futures Daily correspondents the fact. Frankly speaking, loss for iron silicon and manganese silicon smelting plants is concentrated in some place where costs is relatively high. According to data, it is concentrated in Inner Mongolia Autonomous Region, Ningxia Hui Autonomous Region and Guangxi Zhuang Autonomous Region mainly. Particularly, the loss of manganese silicon production mainly in medium-small size factory in Ningxia Hui Autonomous Region and Guangxi Zhuang Autonomous Region. While, in terms of iron silicon production loss, it is mainly in Ningxia Hui Autonomous Region. That is, except for Inner Mongolia Autonomous Region, there are losses basically. Happened everything has their own intrinsic and extrinsic reasons. For the loss, there are many reasons such as weak market demand and poor industrial profits. However, it has a deeper reason, namely, large price discrepancy between IMAR and other producing areas. These are the reasons why the loss in producing areas except for IMAR.
Mr. Dong introduced loss situation to correspondents. He said the smelting loss of manganese silicon is more than ferrosilicon and representative areas are Ningxia Hui Autonomous Region, Qinghai Province and Shaanxi Province. So far, immediate loss for Ningxia Hui Autonomous Region has been concentrated in the second and fourth quarter of 2023. At the end of second quarter 2023, cost of factory for some ferrosilicon manufacturers is high. Cost of carbon is more than 1000 RMB/MT for some manufacturers in Zhongwei municipal. Not only that, relative electricity policy and recovery penalty also aggravates the capital pressure for manufacturer undoubtedly. Fortunately, there is a proverb in China says that you will find a way. As the smelting profit reaches the valley, it starts to recover in the third quarter of 2023, operating rate oscillated upward for overall industry. Till the end of November of that year, national production of ferrosilicon reaches 492,800 MT/month, it is next to the peak. Despite this, current price of ferrosilicon declined consecutively due to weak demand for downstream enterprises. As of mid-January of 2024, some high-cost consumption ferrosilicon manufacturers have experienced the loss, it is 100 RMB/MT approximately, without considering waste heat power generation.
According to narrative of enterprise personnel, the actual smelting costs of manufacturer in Qinghai Province is expensive. It is possible for three reasons that cause the loss in the first half of 2024 to recur. First of all, settlement fee is high. Due to geographical location and weather, clean energy developed relative slowly such as hydroelectric power and wind power. Besides, the proportion of clean energy is low, of course, it excludes green electricity. At the same time, lack of overall power supply also affects layout of clean energy. The actual settlement electricity bill is fixed. Secondly, costs of blue carbon is high. Freight fee of market carbon in Qinghai Province is higher than Zhongwei municipal, it is about 100 RMB/MT. Last but not least, high increment for single consumption results in electricity costs increase.
Mr. Dong introduced influencing factor for manganese silicon.
For manganese silicon, the southern producing area continued losing money, it affected by high electricity price. Concretely speaking, southern producing areas are Yunan Province, Guizhou Province, Guangxi Zhuang Autonomous Region and other areas. When it comes to Yunan Province, we have to talk about its power generation method. It is hydroelectric power mainly. Frankly speaking, electricity price is different in the whole year. According to the local climate and historical data, rainy season for Yunan Province is usually from June to October. Therefore, electricity price downs to 0.35 RMB/kW·h, the rest of production for small profits or even losses, meanwhile, it is the reason why operating rate in Yunan Province has obvious seasonal. As for other southern places we mentioned above, they are mainly affected by high electricity price and the loss. For Guangxi Zhuang Autonomous Region, its electricity price is 0.63 RMB/kW·h. While, for Guizhou Province, about 0.13 – 0.17 RMB/kW·h cheaper than Guangxi Zhuang Autonomous Region. Increment for power costs of smelting manganese silicon in southern producing area is no more than 970 RMB/MT compared with north.
