The sentiment in the magnesium market is low, and magnesium prices continue to hit new lows. Should magnesium plants reduce production or not? [SMM Analysis]

After magnesium prices fell below 18,000 yuan/mt in early March this year, the magnesium market once again fell below 18,000 yuan/mt in July amid complaints from magnesium ingot smelters and expectations from downstream buyers. As of July 21, the mainstream transaction prices for 90 magnesium ingots in the main production areas were 17,650-17,700 yuan/mt.

Raw material situation: The mainstream transaction prices for 75 ferrosilicon lumps in Shaanxi were 6,900-7,000 yuan/mt, down 100 yuan/mt from a week ago. In the short term, ferrosilicon prices are expected to operate weakly. Currently, the upper reaches of the Yangtze River in Sichuan are experiencing abundant rainfall, leading to a continuous increase in hydropower output, which suppresses the demand for thermal power. Additionally, coal inventories are relatively high, and port coal prices currently lack demand support, resulting in insufficient momentum for coal price increases. Furthermore, affected by high costs and high daily consumption expectations, most traders are reluctant to lower prices or sell at low prices. Therefore, coal prices are expected to fluctuate narrowly in the short term.

Supply: Currently, smelters are generally maintaining normal production, but the market's oversupply situation has shifted the focus back to the operating conditions of major smelting areas. Previous weak demand led to a decline in magnesium prices, and downstream producers, influenced by the sentiment of "buying when prices rise, not when they fall," are adopting a wait-and-see attitude. This has caused inventory pressure on smelters to gradually increase. Additionally, the hot weather is affecting continuous operations, and some magnesium ingot producers have already started implementing maintenance plans. According to incomplete statistics, the magnesium ingot production of smelters announcing maintenance in July will be impacted by more than 4,000 mt.

Demand situation: Affected by the low-price atmosphere and the psychological impact of chasing gains and avoiding losses, there is a strong wait-and-see sentiment among downstream buyers. After a period of stalemate, magnesium producers reluctantly reduced prices. However, as prices gradually approached and fell below the cost line, the room for further price reductions by magnesium producers became limited.

The inventory of magnesium ingot plants continues to accumulate, with raw material prices narrowly fluctuating at low levels. The price of magnesium ingots hovers around the cost line. It seems that the only way left for the magnesium ingot market is to reduce production to decrease the supply of magnesium ingots and thereby reset the supply-demand relationship. SMM will continue to pay attention to subsequent transaction conditions and the maintenance status of magnesium ingot smelters.