The impact of power rationing on the magnesium industry chain
Impacted regions
Shaanxi
Capacity proportion
60%
Power rationing policy
The government of Fugu County in Shaanxi Province issued the "Letter on Requesting the Suspension of Power Supply to Fugu County’s First Batch of Key Energy Consumption Enterprises under Dual Control” on September 19, requesting Yulin Power Supply Bureau to suspend power supply to local magnesium companies.
The impact on the supply side
According to SMM statistics, more than 60% of China’s magnesium ingots are produced in Shaanxi Province. This round of production restrictions will break the supply and demand balance of magnesium ingot. The output of China’s magnesium is expected to decline to 55,000 mt in September.
The impact on the demand side
The end users of the magnesium alloys were strongly resistant to the sharp rise of the magnesium prices, as the costs for the magnesium alloys in some die-casting products for cars rose by 20%. The magnesium alloy sales were stagnated, and some end users were considering about substitutes. At the same time, some titanium sponge enterprises were greatly affected. The semi-process titanium sponge plants mainly apply externally sourced magnesium ingots, and the rapid rise in magnesium prices has led to a significant increase in production costs. Meanwhile, the prices of titanium sponge were suppressed by the weak demand, causing serious losses in the semi-process titanium plants.
The impact on magnesium prices and the price forecast
The ignition time of the major plants in Fugu is uncertain. However, the panic caused by the production suspension in the major production areas has been digested by the market, and the upstream and downstream industries have returned to the wait-and-see stance near the production resumption. The overall transaction is sluggish. The supply and demand weaken simultaneously in the market, and the magnesium prices are expected to stabilise amid the lower stocks of traders. SMM will continue to follow the work resumption in the major magnesium production areas.
Price change in 2021
The prices of the magnesium ingots (Mg 99.90%) in Fugu have risen by about 297% from the beginning of the year.
