Double control of energy consumption in China causes a chain reaction: magnesium stocks in Europe may be depleted within weeks and the recovery of the global auto industry faces a new crisis.

At a time when the global automobile industry has not come out of the shadow of "lack of core", there is a new risk: lack of magnesium.

Magnesium stocks in Europe have fallen to extremely dangerous levels because of restrictions on magnesium production in China. Magnesium is the key raw material for the production of aluminum alloy, which is widely used in automobile gearbox, steering column, seat frame, fuel tank cover and so on. This means that if magnesium production is delayed, the global auto industry will once again face the risk of massive shutdowns.

"there is no substitute for magnesium in aluminum sheet and billet production," Barclays analyst Amos Fletcher (Amos Fletcher) said in a research report. 35% of the downstream demand for magnesium is in the car body-so if the supply of magnesium stops, the entire auto industry could come to a standstill. "

Analysts at Bank of America Securities also said in a report: "the shortage of magnesium may lead to a shortage of aluminum, which in turn may affect car production." We emphasize at this point that this situation has not been included in our expectations. The problem has just emerged, and no automaker has issued a warning about it. "

Matalco, the largest US billet producer, told its customers last week that magnesium supplies had "dried up" and that the company would have to cut billet production next year if the shortage persisted, according to a report by S & P Global Platts Energy Consulting.

About 85% of the world's magnesium production comes from China, a large part of which comes from Yulin City, Shaanxi Province. On September 13, the Development and Reform Commission of Yulin, Shaanxi Province, issued the Circular on ensuring the completion of the target of double control of energy consumption in 2021. The output of most magnesium enterprises in the main producing areas is limited by 50%, involving more than 40 magnesium factories. On September 20, the government of Fugu County, Shaanxi Province issued a letter on asking the first batch of enterprises with double control of energy consumption in Fugu County to stop power supply, requiring Yulin Power supply Bureau to stop producing power supply to local metal magnesium enterprises in Fugu County starting from September 20, 2021.

This round of production restrictions will directly affect the overall supply of magnesium. Global magnesium stocks could fall to extremely low levels by the end of the year if China does not increase production as soon as possible, as magnesium is difficult to store (oxidation begins three months later), according to BofA.

Almost half of the magnesium produced in China is exported to Europe, with a large portion going to Germany, according to the General Administration of Customs. In the past month, European magnesium import prices have surged 75 per cent to a record high of more than $9000 a tonne.

In a statement issued earlier this month, the German non-ferrous metals trade association (WV Metalle) called on the German government to urgently start diplomatic negotiations with China. "current magnesium stocks in Germany and across Europe are expected to be depleted within a few weeks before the end of November 2021 at the latest," the statement said. If there is such a serious supply bottleneck, there may be large-scale production cuts. "

Other industry groups have also issued warnings. (European Aluminium), an industry group whose members include Norway's Hydro (Norsk Hydro), Rio Tinto and Alcoa, called on EU and governments to take immediate action with Chinese partners. "the entire aluminium value-added chain in industries such as automobiles, aircraft, electric bicycles, construction, packaging and engineering are facing large-scale production losses due to supply bottlenecks," the association said. "

The key question now is whether China's magnesium production can restart by the end of this year. "this is a risk that deserves close attention," says Fletcher of Barclays. "

It takes 35 to 40 megawatt hours of electricity to produce a ton of magnesium and 16 megawatt hours to produce a tonne of aluminum, according to Bank of America Securities. In the context of the current global energy shortage, there is still a question mark over whether this energy-intensive industry can resume production quickly.