Concerns Over Tight Spot Supply Resurface, How Will Magnesium Prices Perform After a Single-Day Surge of 2.55%? [SMM Commentary]

SMM March 27 News:

Due to the deployment of inspections on bulk industrial solid waste storage sites in multiple regions and the approaching environmental protection maintenance in April, concerns have arisen about the increased costs and disrupted production schedules caused by the need to treat magnesium slag before disposal. Worries about tight spot supply have resurfaced, and magnesium producers are strongly inclined to stand firm on quotes, unwilling to sell at low prices. Magnesium prices surged sharply, leading to panic inquiries from downstream traders. With generally low inventory levels at magnesium enterprises, many companies had to restock at high prices to maintain orders.

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Spot Market: According to SMM quotations, on March 27, SMM 99.9% magnesium ingot (Fugu, Shenmu) was quoted at 16,000-16,200 yuan/mt, with an average price of 16,100 yuan/mt, up 400 yuan/mt from the previous trading day, a 2.55% increase.

Since the beginning of March, magnesium prices have been volatile. The decline in coal and ferrosilicon raw material prices at the start of March weakened the cost support for magnesium prices, coupled with weak downstream demand in the magnesium market, where only just-in-time procurement dominated, leading to weak market confidence. On March 6, SMM 99.9% magnesium ingot (Fugu, Shenmu) fell to a multi-year low of 15,050 yuan/mt. However, as magnesium producers continued to cut production, the supply-demand relationship shifted, and the generally low inventory levels at magnesium enterprises provided low inventory support for magnesium prices, leading to a rebound from March 10. After the average price of SMM 99.9% magnesium ingot (Fugu, Shenmu) rose to 16,000 yuan/mt on March 20, the rapid climb in magnesium prices significantly increased costs for many downstream enterprises. With no significant increase in downstream demand, many downstream enterprises only made just-in-time procurement of low-priced sources, resulting in sluggish market transactions. Pressured by weakening demand, the price center of magnesium ingots slightly declined, and the average price dropped to 15,700 yuan/mt by March 26. However, in the afternoon of March 26, as news about the management of solid waste storage sites spread, concerns about tight supply resurfaced, and magnesium producers regained confidence in standing firm on quotes. Some downstream enterprises with low inventory made panic inquiries to restock, leading to a sharp surge in magnesium prices.

Outlook:

SMM analysis suggests that whether the management of solid waste storage sites will affect the normal production schedules and costs of magnesium ingot enterprises remains to be observed. SMM will continue to monitor the impact of this news on magnesium producers' production. Considering that low inventory levels at magnesium enterprises will provide underlying support for magnesium prices, and with magnesium ingot producers currently strongly inclined to stand firm on quotes, it is expected that magnesium prices may continue to fluctuate upward in the short term.

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