SHANHGAI, Mar. 12 (SMM) --

Supply

EMM producers that haven't resumed production after the Chinese New Year holiday with capacity between 5-10 kt/yr gradually resumed production at present, and operating rates at these producers were already as high as 78%. In this context, supply of EMM increased significantly. Meanwhile, it still takes time for EMM producers to consume existing inventories, and the increase supply will exert pressure on EMM prices. However, mainstream costs at EMM producers were in the RMB 14,500-15,000/mt range, and prices of raw material like ore powder, sulfuric acid and selenium dioxide will not likely decline in the short term. Stable high costs will lend strong support for EMM prices.

Demand

Demand of EMM is relatively soft at present. Stainless steel industry is in a sluggish situation and selling prices of stainless steel are nearly the same as the costs at private stainless steel mills, so purchasing interest from stainless steel mills is slightly low. In addition, situation at manganese alloy producers is also depressing, as bid volumes and bid prices from large steel mills in March are both down. Meanwhile, tight supply of electricity due to severe drought in Yunnan, Guizhou and Sichuan provinces exerts negative impact on operating rates at manganese alloy producers. In this context, most manganese alloy producers still adopt a wait-and-see attitude, although some alloy producers that singed contract with steel mills still inquir prices and purchas goods in a limited amount. What's more, exporters also report that there are more inquiries but limited orders in export market, and it still need time for the exporting market to recover.

Summary

SMM believes that EMM prices will still linger between RMB 14,700-15,200/mt, under the context that supply outweighs demand but high costs still support EMM prices. Dome market insiders believe EMM prices will fall as low as RMB 145,000/mt, but SMM believes that the possibility is low. The reasons are as follows: firstly current costs have already increased by RMB 200/mt from the level before the Chinese New Year holiday, and high costs would't not allow EMM prices fall to the level before the Chinese New Year holiday. Secondly, most traders have replenished stocks around RMB 14,500/mt, and the possibility for cargo-holders to move goods at their original buying prices will be low. If traders are unwilling to move goods at this level, the possibility for producers with higher costs to move goods at low prices will be even lower. In this context, domestic EMM prices are expected to move in the RMB 14,700-14,800/mt range temporarily.

To contact the writer on this report: jianghanmei@smm.cn

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