The global manganese supply chain is currently facing challenges, leading to significant price surges in downstream manganese silicon alloy productsThe manganese silicon futures market has also experienced a remarkable increase, with fluctuations drawing attention from various industries and analysts alike.

On May 14, after a prolonged rally, the manganese silicon futures prices witnessed a drop, as profit-taking by bulls was evidentThe main contract settled at 8,538 yuan per ton, reflecting a decrease of 5.07%. This shift in market dynamics highlights the volatility that can arise within commodity trading, particularly when driven by external supply pressures and speculative behavior among investors.

Recent events indicate that disruptions in Australian mining operations have significantly impacted the manganese silicon market, resulting in an upward trend for pricesThe primary contract for manganese silicon saw a dramatic escalation from a low of 6,032 yuan per ton at the beginning of April, climbing over six weeks to a peak of 9,192 yuan per ton

This price movement underscores the sensitivity of market prices to supply chain disturbances, especially from prominent producers.

Zhao Lili, an analyst from Zhuochuang Information, elucidates the situation: the largest manganese producer in the world, South32’s GEMCO, has faced ongoing operational issues, which have resulted in approximately 10% of the global manganese supply being affectedLooking ahead, the industry is expected to enter a peak season, with a gradual recovery in downstream demand likely providing support for manganese product prices.

This disruption in supply has led to irrational price increases at ports, prompting further hikes in imported manganese ore prices and corresponding downstream product costsSince the beginning of April, the futures price has surged by 37%, reflecting the tight supply conditions and heightened market sentiment.

According to Baichuan Yingfu’s statistical analysis, prices for manganese silicon have skyrocketed by 1,672 yuan per ton during this round of price increases

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By early April, the prices reached yearly lowsHowever, as news of Australian mine operational difficulties circulated, the prices began to rise sharply in response to market emotions that impacted both futures and spot markets, leading to significant cost hikes in smelting.

The alloy, a blend of iron with one or more metallic or non-metallic elements, plays a crucial role in the steel industry, primarily as a deoxidizer in steelmakingManganese silicon alloy, which contains a substantial amount of silicon, is essential in the production of various steel gradesThe addition of specific quantities results in different steel varieties, such as 20 kg of manganese silicon and 4 kg of ferrosilicon for each ton of rebar steel.

It is vital to note that China’s heavy reliance on imported manganese has made it vulnerable to price fluctuations when supply disruptions occurCurrent data indicates that domestic manganese production cannot satisfy the demand for manganese alloys, prompting increased imports to meet industry needs

Countries such as South Africa, Australia, Gabon, Brazil, Malaysia, and Ghana account for over 95% of the total manganese ore imports to China, with imports from South Africa, Australia, and Gabon making up more than 75% of this total.

Zhao Lili further highlights the implications of continued supply interruptions from Australian minesIf the disruptions persist for an entire year, price increases for manganese ore in foreign markets would follow, alongside a reduction in overall manganese imports.

Monitoring from business analysts reveals that the constraints on Australian mining operations have strengthened price trends for other manganese sources, such as the contract prices for Gabon's Comilog manganese increasing by $0.5 per ton in May and by an additional $2 per ton in June.

From a demand perspective, the consumption of manganese silicon and ferrosilicon is primarily driven by the downstream steel sector

Changes in profit margins within the steel industry directly affect the operational rates of steel mills, which in turn impacts the demand for alloy productsAccording to Mysteel, sluggish recovery in downstream operations has resulted in underwhelming steel demand, which has not met market expectationsProjections for 2024 indicate only a 0.5% to 1% growth in steel demand, while alloy requirements face challenges with continued maintenance and limited production increases.

As per monitoring by business analysts, in late April, significant steel producers noted a 3.8% month-on-month increase in average daily crude steel production, although a 0.33% year-on-year decline was observedThis uptick indicates a rising demand for manganese silicon alloys, yet the escalating prices coupled with tight supply of the alloy pose challenges for steel companiesIncreased procurement costs and uncertainty surrounding manganese ore supplies are contributing to ongoing bullish sentiments in the manganese silicon market.

The impacts of these developments extend to the stock market as well, where related listed companies have experienced drastic fluctuations in their share prices

For example, South Manganese Industries, which is involved in producing electrolytic manganese, manganese sulfate, electrolytic dioxide, manganese silicon, and high-carbon ferrochrome, saw its shares rise by 32.58% on May 8. Since early April, the company's stock price has soared over 103%. However, by the close on May 14, shares had corrected to a 10% drop, settling at 0.52 Hong Kong dollarsA look at the financial fundamentals reveals that South Manganese’s net profit for 2023 fell by 106% year-on-year.

Similarly, shares of Xiangtan Electrochemical, listed in the A-share market, rose approximately 43% from early April to mid-May, with specific trading days showing increases as high as 52%. Nonetheless, their annual reports indicate a 10% decline in net profit and a 24.5% drop in net profit after excluding non-recurring gains.

The surge in manganese silicon futures has drawn regulatory attention, prompting the Zhengzhou Commodity Exchange to implement trading limits on this commodity