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Markets prepare for possible supply shortfall as BHP Billiton announces suspension of its TEMCO manganese alloy smelter in Australia.
By Adam Currie – Exclusive to Magnesium Investing News
Manganese market conditions at the beginning of 2012 were relatively weak as a result of an increasing stockpile of ore at Chinese ports, coupled with poor demand for steel long products.
Fast forward two months and bearish sentiment was rife on news that a glut of manganese supply from South Africa and Indonesia had resulted in notable downward pressure on the metal. This was exacerbated by revelations that last year the price of manganese fell approximately 40 percent, making it the worst performing metal on the year.
The need to reassess
Reprieve was evident recently with news that BHP Billiton (NYSE:BHP) had cited a 22 percent decline in ore prices and a 10 percent decline in alloy prices as a “major drag on profitability,” resulting in a restructuring of its manganese division.
Global supply of the metal is set to take a knock when the company suspends production at its TEMCO manganese alloy smelter in Tasmania, Australia by early to mid-March. BHP cited stiff international competition and rising operating costs as reasons behind the move.
“Recently, there has been further erosion of its international competitiveness due to the strong Australian dollar and steady increases in input costs, including in reductants and electricity,” the company said in a statement.
“While measures have been taken to make the operation as cost effective as possible, these have not been sufficient to counter shifts in the market, increased costs of production, or operating losses,” BHP said.
TEMCO produces 65,000 million tons (mt) per year of silico-manganese and 240,000 mt/year of ferro-manganese, while Samancor is also set to cut 120,000 mt/year of silico-manganese.
“The shutdowns will see manganese alloy prices pick up, but then we’ll see China start to increase its production of manganese alloys,” a Melbourne-based analyst told a financial news service in response to the announcement.
Every cloud has a silver lining
Despite supply setbacks as a result of the closure, an investor report claimed that in the longer term, the direction of manganese prices will depend not only on supply but on a combination of economic growth in the industrialized world, and continued expansion of industrializing and emerging economies in both Asia and South America.
Commenting on the commodity’s longer term potential, Roskill Information Services forecast that global prices could rise by as much as 20 percent over the next five years, and demand for the material could increase by six percent during the same period. In particular, it suggested that a recovery in areas such as construction in Europe and North America, could lead to a firming of manganese ferroalloy prices in 2013 and beyond.
An outlook published in the Wall Street Journal underlined that manganese is an essential constituent in iron and steel and that it still has no satisfactory substitute in this application. In 2011, unit consumption was 8 kilograms per million tons of steel, although changes in steelmaking processes and practices have gradually reduced the intensity of use.
Diversifying its user base
Despite news of TEMCOs impending production suspension, the sector was dealt a refreshingly bullish outlook when research firm CPM Group released a manganese report forecasting strengthening future demand and prices for electrolytic manganese metal (EMM). EMM is employed in a wide range of applications, including stainless steels used for consumer applications, other steels, non-ferrous alloys in the canning industry, electronic components, and specialty chemical applications.
In particular, CPM identified that opportunities are opening up for new EMM producers outside of China due to increased Chinese regulatory pressure, falling ore grades, and rising production costs.
According to a report by Manganese Investing News, advancements and innovations in green energy technologies are being pegged as factors that have the potential to result in a surge in demand for EMM.
Hyundai’s recent announcement to offer a lifetime hybrid battery replacement guarantee for its lithium polymer battery-powered 2012 Sonata Hybrids has generated excitement about manganese’s potential in the battery market.
Securities Disclosure: I, Adam Currie, hold no direct investment interest in any company mentioned in this article.