Blue charcoal losses push up smelting costs; magnesium ingot costs rise month-on-month in June [SMM Analysis]

In June, the tax-inclusive full cost of China's magnesium ingot industry rose by 1.18% month-on-month to RMB 16,138/ton, with a month-on-month increase of 1.18%, and the cost dividend of the previous month has basically faded. The safety accident at the Qinyuan coal mine at the end of May directly tightened the circulation and supply of raw coal in the region, leading to a rapid surge in market coal prices. There was an obvious time lag in the transmission of the blue charcoal market, which exacerbated production losses at blue charcoal plants and significantly pushed up the cost of core energy raw materials for primary magnesium smelting. While enterprises have mitigated cost pressures only marginally by increasing production capacity to spread fixed expenses such as plant and equipment depreciation, the incremental cost impact brought by rising energy prices is more pronounced. As a result, the overall comprehensive smelting cost of the industry has moved upward, the processing profits of upstream factories have continued to be compressed, and the profit margins of most enterprises have narrowed.

Raw material cost: The ex-factory price of dolomite remains stable, with limited overall impact

The leading dolomite stone plants in the Wutai area of Shanxi have been out of operation for a long time, leading to a persistent local supply gap. Most magnesium plants have locked in long-term contracted ore sources in advance, keeping the ex-factory procurement price of dolomite stable. Meanwhile, stone plants in Hubei, Henan, Inner Mongolia and other regions continue to release and ship goods, effectively filling the market supply gap. The diversion of regional supply reduces the impact of supply disruption from a single origin, resulting in small fluctuations in the cost of the dolomite raw material side, which has a limited pulling effect on the overall production cost of magnesium ingots and has not formed obvious upward cost pressure.

Auxiliary material costs: Ferrosilicon prices continued to edge down, while other auxiliary materials saw a slight increase, leaving the overall level flat month-on-month

At present, the atmosphere of long-short competition in the ferrosilicon market is strong. The upstream raw coal and blue carbon costs form a bottom support, suppressing the space for price decline. However, the demand for downstream steel and foundry industries continues to be sluggish, and the purchasing enthusiasm is weak. The forces of long and short offset each other, restricting the significant fluctuations in the market. In the short term, the spot price of ferrosilicon maintains a narrow range of fluctuations around 5950 yuan/ton, with a weak trend and a slight decline. Other types of smelting auxiliary consumables have slightly increased in price, and the comprehensive cost of auxiliary materials is basically flat compared to the previous period, without bringing additional cost burden to magnesium factories.

Energy cost: Coal prices first weakened then strengthened, but this has a limited impact on magnesium smelting costs

At the end of May, tightened safety rectification at Qinyuan Coal Mine restricted the supply of raw coal circulation, leading to a short-term rapid surge in spot raw coal prices in the market, which pushed up the raw material procurement costs for carbon plants. The price transmission rhythm of semi-coke lagged behind the rise of raw coal, making it difficult for carbon enterprises to raise their ex-factory prices synchronously. The industry as a whole fell into losses, directly increasing the energy expenditure for primary magnesium smelting. Although raw coal prices rebounded somewhat at the end of the month, the average monthly coal price for the whole month was still higher than that in May. According to calculations, the energy cost per ton of magnesium ingot in the industry increased by about 150 yuan month-on-month, becoming the core driving factor for the cost increase this month.

Labor Cost: At full production capacity, the per-ton labor cost remains stable at a low level

The recent bottoming out and rebound of magnesium prices in the market has boosted the production enthusiasm of smelters. Major domestic primary magnesium enterprises are basically operating at full capacity with continuous production, and the efficiency of on-site personnel and equipment operation has been maximized. When the total labor expenditure of factories is allocated to each ton of magnesium ingot, the value remains at a low level with no obvious monthly fluctuations. The hedging effect of labor amortization costs is significant, and this segment has not exerted an upward pull on the overall full cost of the industry.