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Chinese magnesium prices breach crucial level on stock uncertainty – S&P Global

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Some offers now seen at Yuan 41,000/mt
Prices to remain firm in December
Heightened safety inspections and a severe magnesium ingot shortage have propped up China’s magnesium prices to Yuan 40,000/mt ($6,273/mt), breaching a crucial level for the first time in weeks, industry sources said Dec. 7.
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As of Dec. 6, Shanxi Jiuling Jiamei Metal Co. offered 99.9% magnesium ingot price at Yuan 41,000/mt while Fugu Xintian Magnesium Alloy and Fugu Yabo Semi-Coke offered ingot with similar specifications at Yuan 40,000/mt and Yuan 39,000/mt, respectively, according to the companies.
Magnesium prices have risen sharply through 2021 and have remained highly volatile in the last few months.
In December 2020, domestic magnesium prices were seen at Yuan 15,500-15,600/mt, according to the China Nonferrous Metals Industry Association.
Despite the current volatility, offers remained far off from an all-time high when ingot prices reached Yuan 71,000/mt in September, according to the CNIA.
Magnesium prices have remained firm in the week started Dec. 5, supported by ingot shortages and as smelters lining up production to meet orders looked to continue in the near term, Shaanxi Magnesium Industry Group said in its latest note.
Meanwhile, heightened environmental inspections in the magnesium hubs are expected to keep spot supply tight, leading to firm prices throughout December, the group said.
Despite rising magnesium prices and record levels in September, smelters were unable to squeeze out steady profits as production costs have risen in tandem due to increased feedstock rates, CNIA said, quoting a Fugu-based smelter source.
China’s magnesium industry relies heavily on coal as a feedstock. Coal prices hit record highs a few months back, forcing the government to intervene in the markets through power rationing and price control measures.
Industry participants must unwillingly accept high coal costs for smelting magnesium ingot, according to the Fugu source.
Fugu county in China’s Shaanxi province is the world’s largest magnesium production hub, having more than 35 magnesium smelters and an aggregate output capacity of more than 700,000 mt/year, accounting for more than 50% of China’s total, CNIA said.
Shaanxi’s magnesium sector is mostly a semi-coke, ferrosilicon, magnesium circular industry, so high coal prices have weighed on magnesium production, according to the association.
At one point this year, domestic coal prices rose to a level when there were just quotations offered and smelters were finding it hard to source coal, forcing them to either cut output or halt operations, pushing up prices, CNIA said.
CNIA has urged the domestic sector to cut coal usage to 4.5 mt for every metric ton of magnesium to meet China’s carbon emissions goals.
Right now, China’s magnesium sector’s coal usage for 1 mt of magnesium produced is at 5 mt, falling gradually from 16-18 mt before 1988, according to CNIA.
Single furnaces with less than 75,000 mt/year semi-coke output capacity would need to be upgraded, based on China’s National Development and Reform Commission’s requirement for the domestic magnesium sector.
As magnesium smelters need waste gas generated from semi-coke production to power smelting, the sector is pouring in funds to upgrade production facilities, thereby hiking production costs and lifting ingot prices, CNIA said.
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