Manganese Outlook 2018: Price Decline Ahead?

After a strong 2016, manganese performed with volatility in 2017.
Prices were supported by supply-side factors in China rather than strong demand, which helped the metal sustain its high price level for longer than many had expected.
But as the year comes to a close, what’s ahead for the manganese space? Here, CRU analyst Dmitry Popov and Montezuma Mining (ASX:MZM) Executive Director Justin Brown discuss the main trends in the manganese market in 2017 and what’s ahead for the manganese outlook in the new year.

Manganese trends 2017: Prices surprise to upside

This time last year, many analysts were predicting a better year ahead for manganese, as prices had recovered from very low levels seen from 2014 to 2015.
“The manganese ore market has been very volatile over the past two years, probably the most volatile among bulk commodities,” Popov said, adding that he did not expect prices to remain high for such a long period of time this year.
“Part of the reason for this increase was the unexpected strength in the Chinese steel market in Q3, which has been driven by supply-side factors rather than exceptional strength in finished steel demand,” he added.
Indeed, many market participants were surprised to see prices as high as $6.50 per dmtu in October, although they finally started to move lower in November.
“The key surprise was the effectiveness of the Chinese government’s supply-side reform, which resulted higher capacity utilization in the Chinese steel industry and thus higher prices,” Popov said.
In his opinion, the biggest news in the manganese market this year was the purchase of ConsMin by China’s TMI, which is now looking to restart the Woodie Woodie manganese mine in Australia.
Brown saw commodities prices strengthening as the global economy slowly recovered. “After a strong recovery in 2016, manganese prices flattened off and did a slight pullback. But overall, [we saw] a much healthier commodities price environment than we had seen for several years,” he added.
In 2017, Montezuma made significant progress on developing a hydrometallurgical flowsheet to process ores from the large manganese resource at its Butcherbird manganese project. “The progress we have made has the potential to be a company maker and unlock the value of the deposit,” Brown added.

Manganese outlook 2018: Key factors to watch

As the new year starts, investors should keep an eye on several catalysts that could impact the manganese market, and prices in particular.

“Even though prices have held up high so far, we still expect a sharp decline, possibly by the end of 2017,” Popov said, explaining that prices will fall imminently once supply rises to substantially high levels by the end of the year.
“The catalyst for the quick fall could be steel production cuts in China during the heating season, which lasts from November to March,” he added.
In terms of factors to keep an eye on, Popov also suggested that risks for prices will come from the supply side. CRU forecasts that demand will remain firm due to good growth in steel demand and production across the world in the next few years.
However, Popov noted there is also an upside risk to prices from the supply side — if Chinese domestic manganese ore production declines sharply due to very low grades, then imports will be structurally higher and increases in production elsewhere will not lead to large oversupply.

“We believe that in 2017, growth in Chinese imports was primarily the result of restocking, but if imports continue to grow strongly then this would suggest strong declines in domestic supply,” he added.
Brown expects the market to perform similarly to this year, but sees it “trending upwards in terms of sentiment and supply/demand fundamentals as the lithium-ion battery market continues to build.”
According to Brown, manganese is the least understood of the lithium-ion battery cathode metals, but investors’  knowledge of the importance of manganese is building. “Montezuma is currently the only advanced high-purity manganese aspirant for investors who are looking for exposure to this market segment,” he noted.
Popov said investors should pay attention to what happens with the following companies in 2018:

• Tshipi é Ntle — this key manganese ore producer recently put aside its plans for an IPO this year. A change in market conditions might encourage it to resume these plans.
• UMK — production has been less than expected this year, but could ramp up significantly in 2018.
• TMI — TMI is the Chinese electrolytic manganese metal producer that bought ConsMin this year. As mentioned, it is restarting production at Woodie Woodie mine in Australia, which could ramp up manganese production strongly.
  

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.