SHANGHAI, Jan. 20 (SMM) -- According to SMM, there are four factors that directly push up EMM prices.

Firstly, costs at EMM producers kept on rising.

Raw materials like ore powder and selenium dioxide remained at high levels and still kept on rising. Costs at EMM produces rose by RMB 800 -1,000/mt during the period from December 24th, 2009 to January 18th, 2010. (1) Ore powder. Supply of ore powder from ore mines reduced due to the approaching of the Chinese New Year holiday and freezing weather as well as shut down of small and medium sized mines ordered by the government. However, most EMM producers were busy replenishing raw materials for the preparation of the Chinese New Year holiday. Prices of ore powder rose by RMB 80-100/mt in recent 20 days under the context of increasing demand and reducing supply. (2) Sulphuric acid. Inventories of sulphuric acid were not high, and offers of sulphuric acid kept on rising due to improved demand from downstream fertilizer industry. Prices of sulphuric acid rose by RMB100-150/mt recently. (3) Selenium dioxide. Supply of selenium dioxide was tight in overseas market, and domestic suppliers were reluctant to move goods for the expectation of price increases. Meanwhile, speculative buying increased, and prices of selenium dioxide rose by more than RMB 60/kg recently.

Secondly, supply of EMM kept on reducing due to restriction of electric power supply.

According to statistics of SMM survey, operating rates at EMM producers reduced by 5-6% to around 69% recently. Supply of EMM is expected to continue reducing as restriction of electric power supply will not change in the short term. (1) Supply of electric power was slightly tight in Guizhou province, and supply of electric power was cut by 1/3 at EMM producers in main producing regions (Songtao, Tongren). (2) Supply of electric power was tightening in Hunan and Guangxi province, and EMM producers in some regions made production in turns. (3) In Chongqing, only producers that using power from State Grid were under negative impact of electric power supply. Electric power costs at EMM producers using power from Chongqing Wujiang Electric Power Co., Ltd, were raised by RMB 0.02/kWh.

Thirdly, purchasing volumes increased from downstream purchasers.

According to SMM, stainless steel mills still made purchase in a small amount before the Chinese New Year holiday, although stainless steel market remained sluggish without significant change; meanwhile, steel mills also made some purchasing volumes before the Chinese New Year holiday as steel market gradually warmed up. It is worth noting that ferromanganese industries made relatively large purchasing volumes. According to SMM sources, demand of manganese increased significantly at ferromanganese producers due to steady climb of imported manganese ore prices. Meanwhile, ferromanganese producers had no choice but to make purchase in an appropriate amount despite of current high EMM prices because of scheduled production task singed in the order with steel mills that they had to deliver goods to steel mills at the end of this month.

Fourthly, export market showed signs of recovery.

From this week, overseas producers returned to normal work, and overseas business men began to replenish stocks for the concern that prices would rise further since prices of EMM were already high in Chinese market. In this context, export market began to improve gradually, but trading volumes were not in a large amount according to exporters.

Summary

SMM believes EMM prices were pushed up by many factors, but the price bubble can not be ignored. It was reported, growth of EMM prices was faster than growth of costs at EMM producers, with EMM prices rising by RMB 1,600/mt in the past 20 days but costs only rising by RMB 800-1,000/mt. In addition, although supply of EMM began to reduce recently due to restriction of electric power supply, supply of EMM would not be seriously tight since demand from stainless steel mills, the largest consumers of EMM, didn't increase and since operating rates at EMM producers still remain around 70%. In this context, there are great bubbles of EMM prices, but EMM prices will not decline significantly in short term due to the above strong support at EMM producers.

Price trend

With regard to EMM price performance in the future, SMM emphasizes that close attention should be paid to the following three aspects: firstly, will downstream producers including steel mills, stainless steel mills and ferromanganese still have purchasing need? Secondly, as cold weather is approaching and public security department conducts more restrict inspection on ore mines, which tightens supply of ore powder. In this context, will prices of ore powder continue to climb? Thirdly, will supply of EMM continue to decline due to more severe restriction of electric power supply?

 
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