European magnesium prices have been under acute pressure since the start of the year because of oversupply in China and weak demand in domestic and international markets, leading in-warehouse Rotterdam prices to fall below the $3,000/t threshold that was considered a floor during 2023. Argus assessed prices at $2,700-2,800/t du Rotterdam on 26 March 2024, down by 22.5pc year-to-date from $3,500-3,600/t on 2 January.
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The decrease in European in-warehouse prices has been more severe compared with a fall in the China fob price, which is just 12pc lower year-to-date. The steeper drop is because the European market is also correcting backward from the price spike in late December, spurred by the disruption to transit of container vessels through the Bab al-Mandeb strait.
Argus assessed domestic Chinese magnesium prices at 17,600-18,100 yuan/t ex-works China on 27 March, pivoting below the Yn18,000/t ($2,491/t) threshold that some Chinese market participants expected would provide a floor.
Most producers in the Shaanxi province are facing losses, as their production costs have reached Yn17,000/t, excluding losses from their semi-coke business, and are above Yn19,000/t, including semi-coke losses.
Chinese and European magnesium prices are at their lowest levels since April 2021, but remain well above 2020 levels of approximately $2,000/t. Both markets have temporarily settled, with exports from China offered approximate to $2,600/t cif Rotterdam, and European in-warehouse pricing around $2,750/t. There is not yet a clear sense of when and at what price markets will establish a new normal.
The only viable way to arrest the price decline, or insight in-creases, is for producers in China to implement supply cuts, but the logistics of any reduction and the rate at which it could lend support to the market are uncertain, one Europe-an trader said. Sources have also said that while closures may temporarily support spot market prices, they will still levy financial stress on producers in the long run, which may lead to some hesitancy to move forward with significant cutbacks.
Magnesium metal output in Yulin, Shaanxi province, the largest production hub in China, totalled 469,700t in 2023, 15pc lower than 554,300t a year earlier, Yulin statistics bureau data show. The reduction in output was a result of stoppages to magnesium producers’ in-house semi-coke furnaces during May-December. Most producers resumed output by December after they received approvals from local governments, feeding more supply back into the market and subsequently weighing on market sentiment.
China exported 216,327t of magnesium in 2023, of which 55,442t was shipped to the Netherlands. Exports to the Neth-erlands were 20pc lower than 69,297t in 2022, and down by a third compared with 82,433t in 2021, although imports fared 19pc better than in 2020 when China exported 46,776t. Shipments to the Netherlands in January-Feb this year were 12,751t, the highest for that comparative period since 2017, which traders expect will add further pressure on the European market.
Imports in 2021 and 2022 were potentially skewed higher as consumers overbought to reduce their exposure to price volatility and potential limitations on supply. Nevertheless, the drop on imports to their lowest level since the Covid-19 lock-downs of 2020 underscores the dire situation that the Euro-pean secondary aluminium industry faced in 2023, as interest rates and inflation weighed on manufacturing activity.
Secondary aluminium markets were lent a degree of support recently as major automotive companies requested about a third more volumes on second-quarter tenders than last year. This has been combined with a squeeze on aluminium scrap because of unabated purchasing appetite from Asia, even throughout the Red Sea disruptions. But this uptick in downstream demand for aluminium alloy is yet to translate into new demand for raw materials including magnesium and silicon as consumers work through inventories or are sufficiently covered by term contracts.
Furthermore, the increase in scrap costs is pressuring prices that secondary aluminium producers are willing to pay for magnesium and silicon. Some buyers are also cautious to lock in purchases at this time until there is improved clarity on near-term price direction.
By Samuel Wood
Argus Non-Ferrous Markets
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