Silicon alloy: cost and demand jointly dominate low profits become the norm

SMM News: ferrosilicon: short-term continued rebound, medium-term weakening pressure

First, ferrosilicon demand: the demand focuses on steel, which is relatively stable on the whole.

1. Steelmaking end: the output of steel is high and the demand for ferrosilicon is stable.

In the downstream of ferrosilicon, the consumption of the iron and steel industry accounts for more than 60%, which is mainly used in steelmaking and is the most important source of demand for ferrosilicon. The output of steel depends on the terminal demand, as mentioned in the steel section above, the real estate end has hidden worries about decline, but the infrastructure increment is more, so although the entire black terminal demand has seasonal worries, the decline slope may not be large. There is inertia in steel production, and the change of steel output lags behind the terminal demand, so the demand for ferrosilicon will be better in the second half of the year.

From the rhythm of demand, the current terminal demand has fallen, and inventory in steel mills has begun to accumulate, but both long and short process steel mills are actively producing, and the demand for ferrosilicon remains high, and there will be a seasonal decline in the later period, and since the second quarter, steel production and ferrosilicon output have split, which will lead to steel recruitment demand from July to August is not weak, with the phased decline of steel production, ferrosilicon demand weakens.

2. Metal magnesium: excess supply of magnesium, weak demand for ferrosilicon

In the downstream consumption of ferrosilicon, the consumption of metal magnesium accounts for about 15%, mainly 75% of ferrosilicon. From January to May 2020, the domestic output of magnesium metal was 330000 tons, which was basically the same as that of the same period last year. However, the domestic production of magnesium metal accounts for more than 80% of the world, downstream demand, mainly in the automotive industry, more than half of the metal magnesium for export. In the case of the accelerated spread of the overseas epidemic, the overseas economy has been greatly affected, the global manufacturing industry has been in the doldrums, and China's manufacturing exports have also been dragged down, resulting in a relatively unfavorable situation in magnesium metal exports, with orders reduced by 50% to 70%. Even if overseas production begins to resume work, the recovery of orders is not good, and it is expected that metal magnesium exports will not improve throughout the second half of the year. At present, the price of magnesium metal has fallen to 13000 yuan / ton, and the profits of metal magnesium enterprises are meagre. If the price continues to decline, it will lead to the withdrawal of high-cost production capacity from the market, thus affecting the demand for ferrosilicon upstream.

3. Export side: overseas demand is low, and exports are difficult to improve.

For a long time, China has been a net exporter of ferrosilicon, but since 2018, the export market of ferrosilicon has been in the doldrums, and the export volume has been declining continuously, mainly because ferrosilicon belongs to the "two high" export commodities of the customs, and the export tariff remains at 20%. In addition, the international market demand is relatively low, competition is fierce, actual orders are less. From January to April 2020, domestic ferrosilicon exports accumulated 117000 tons, down 30% from the same period last year. In the face of the spread of the overseas epidemic and the unfavorable export situation, it is expected that ferrosilicon exports will still be difficult to improve in the second half of the year.

II. Ferrosilicon supply: sufficient supply capacity, mismatched by profit adjustment

In recent years, the domestic ferrosilicon production capacity continues to rise, and the overall supply capacity of the ferrosilicon industry is sufficient, while the actual supply is mainly regulated by steel recruitment and industry profits. Due to the lag of supply regulation, there is often a short mismatch. From January to May 2020, national ferrosilicon production was 2.13 million tons, down 8.1% from the same period last year. Ferrosilicon production did not begin to increase until May, while downstream steel production maintained positive growth compared with the same period last year.

In the second half of the year, the output of ferrosilicon is mainly affected by industry profits, and the northwest region is expected to reduce electricity charges, if the landing cost will be significantly reduced, and the pattern of long-term surplus of ferrosilicon will remain unchanged, but the short mismatch between supply and demand will take time to repair. Ferrosilicon is expected to remain tight from July to August, and will turn loose in the later stage as production increases.

III. Ferrosilicon outlook: rebound in the short term and weakening pressure in the medium term

In the short term, ferrosilicon prices have declined sharply since March, and the ferrosilicon industry has entered a stage of partial losses. The overall output of the industry is lower than that of the same period last year, the recovery of output is slower than that of downstream steel, and steel production remains high. Since May, ferrosilicon prices have risen, and the recovery of production is still low. At present, supply and demand are slightly tight, and there is still a slight mismatch between supply and demand. Driven by demand, ferrosilicon prices are expected to continue to rebound.

In the medium and long term, ferrosilicon production capacity is relatively excess, and electricity charges are expected to be reduced in the second half of the year, which will pull down ferrosilicon costs. if steel demand weakens periodically, leading to a decline in steel production, and the supply adjustment of the upstream ferrosilicon industry is relatively passive and lagging behind, the ferrosilicon industry as a whole will show a pattern of loose supply, ferrosilicon profit space will remain low for a long time, and the elasticity of price fluctuations will gradually decrease.

Silicon and manganese: cost and demand jointly dominate low profits become the norm

In the first half of 2020, the price of silicon and manganese fluctuated greatly, which was mainly affected by the cost of manganese ore. At the same time, there was also a slight mismatch between supply and demand. What are the possible changes in the silicon and manganese industry in the second half of the year, and how will manganese ore affect the price rise and fall? here we analyze:

Silicon and manganese demand: the output of steel is stable, and it is difficult for the demand to undertake the output.

The downstream of Si-mn alloy is relatively single, all consumption is concentrated in the iron and steel industry, and nearly half of the output is used for downstream rebar production. Combined with our previous judgment on terminal demand and building materials demand, crude steel output will remain at a high level in the second half of 2020.

From the perspective of the rhythm of demand, the demand has been concentrated since the second quarter, and the production willingness of steel mills is relatively high. although it is currently in the off-season and the demand has come back in recent weeks, the inertia of steel production will continue to maintain, and the decline in thread output from July to August may be limited. Silicon and manganese demand will be high in overall protection, and in the later stage, with the seasonal decline of steel production, the demand for silicon and manganese will also decline in the same proportion.

Second, the supply of silicon and manganese: the supply capacity is strong, and the output is reduced under low profit.

1. The overall profit of the industry is low, and the increase of output is less than the demand.

In the first half of 2020, the price of silicon and manganese fluctuated greatly, mainly driven by cost. Especially since the closure of the epidemic in South Africa in March, the price of manganese ore has increased by more than 70%, while the price of silicon and manganese has risen lower than that of manganese ore, resulting in the upward erosion of manganese ore prices into silicon and manganese processing profits. although manganese ore prices have fallen since May, silicon and manganese prices have also fallen even more, especially in high-cost factories that use more spot mines.

From January to May 2020, the national output of silicon and manganese was 4.01 million tons, an increase of 2.2% over the same period last year. The increase in output was less than that of crude steel, which was significantly lower than that at the end of 2019. Judging from the operating rate of the weekly alloy plant, the operating rate this year has never exceeded 60%, and the overall level is relatively low.

In the second half of the year, it is industry profits that affect the supply of silicon and manganese. It is expected that under the joint guidance of manganese ore costs and alloy prices, silicon and manganese profits will fluctuate at a low level, and it is difficult for output to increase significantly. At the same time, production adjustment is more flexible, and output is difficult to decline significantly.

2. The supply of manganese ore is disturbed constantly, and there may be a poor expectation.

Manganese ore, as the main raw material of silicomanganese production, has a high degree of dependence on imports. the spread of overseas epidemic situation in the first half of 2020 also affected the supply of manganese ore, especially the five-week closure of South Africa, which led to a sharp decline in the export volume of manganese ore in South Africa and a sharp rise in domestic manganese ore prices. As South Africa lowers the level of epidemic prevention and control and begins to restore the economy, the shipment of manganese ore is gradually liberalized, and the domestic manganese ore price has dropped sharply, and the price of semi-carbonic acid has dropped from 58 yuan / tonnage to 40 yuan / tonnage (SMM price is from 57 to 38). On the whole, there is a large expectation gap in the manganese ore market, from the oversupply at the beginning of the year to the supply shortage in March-April to the current concern about the manganese ore glut.

At present, the epidemic situation in South Africa has not been effectively controlled, and the shipment of manganese ore has not fully returned to normal. Even if there is an increase in shipments in other regions, there is still great uncertainty in the supply of manganese ore in the second half of the year. From January to May 2020, domestic manganese ore imports were 9.07 million tons, down 12% from the same period last year, while South African imports were 3.83 million tons, down 5.9% from the same period last year. Considering that South Africa was mainly shipped in April, the import data were reflected in May-June. The inventory of manganese ore in Tianjin Port has dropped to 2.6 million tons, which is lower than that in the same period last year. Even if there is a short accumulation of port inventory, it is difficult to burden the inventory in July, and it is still possible to enter the state of destocking in the later stage as the alloy factory acquires goods.

In the long term, the price of manganese ore is high, which stimulates the output of non-mainstream mines, and with the increase of manganese ore supply in South Africa, Australia, Brazil, Gabon and other places, the situation of relative surplus of manganese ore has not fundamentally changed, and the divergence lies in the difference of rhythm. Due to the relatively strong short-term demand, the supply side is not obvious volume, inventory is still being removed, we believe that manganese ore does not have the drive of unilateral decline, there is still the possibility to stop falling and rebound, after the emergence of surplus factors in the later stage, manganese ore prices may enter a downward cycle again.

Third, the prospect of silicon and manganese: cost and need lead together, and low profit of silicon and manganese has become the norm.

In the short term, there are many disturbances on the supply side of manganese ore. Since South Africa relaxed the control of the epidemic, market expectations have weakened, but the demand side is still relatively strong, overseas manganese ore supply is still uncertain, domestic silicon and manganese production has also declined, supply and demand has remained tight. Driven by cost and demand, the price of silicon and manganese is expected to stop falling, or even rebound slightly.

In the medium and long term, the black industrial chain returns to demand-oriented, high profits stimulate manganese ore output, manganese ore shortage or unsustainable, silicon and manganese supply capacity is high, and the contradiction of high supply has not been fundamentally solved. still facing the dual pressure from loose supply and weakening downstream demand, the silicon-manganese industry will maintain a relatively low profit for a long time.

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