After the Labour Day holiday, magnesium prices surged abruptly due to market disruptions caused by news of dolomite production halts, rising from 16,600 yuan/mt to 17,200 yuan/mt, a jump of 800 yuan/mt or 2.38% within two days.
The news of dolomite production halts has been widely circulated. What impact will it have?
In mid-to-late April, a dolomite mine in the Wutai area of Shanxi province announced a production halt. A certain dolomite producer underwent maintenance for 2-3 months due to road repairs and other reasons, leading to a tightening of dolomite supply. Magnesium ingot producers actively stockpiled raw materials and queued up for purchases to ensure normal subsequent production. As a result, the freight cost per ton of dolomite increased by more than 10 yuan to 20 yuan, and in some cases, even rose to 23 yuan/mt for certain magnesium ingot producers. The production cost per ton of magnesium ingot increased by approximately 250 yuan.
According to feedback from the head of a dolomite producer in the Wutai area, the impact of the production halt at this dolomite producer was relatively limited. The production output of two major dolomite producers in Hubei province and other dolomite producers in other areas of Shanxi province was sufficient to fill the gap. Therefore, this production halt would not affect the normal production of magnesium ingot producers.
Dolomite from the Wutai area is highly favored by magnesium ingot producers due to its superior quality and proximity. The maintenance of leading enterprises has prompted downstream customers to seek substitutes in the short term, inadvertently increasing issues such as instability in magnesium ingot quality due to changes in raw materials and higher freight costs due to changes in production locations. This has, to some extent, increased the production costs of magnesium ingots.
Analysis of the reasons for the rise in magnesium prices and outlook for future market trends
The core logic behind this round of price increases lies in the effective destocking by magnesium ingot producers before the holiday, which has alleviated inventory and financial pressures to a certain extent. On May 7, spot inventory decreased by 11.5% MoM compared to the inventory on April 27. The spot inventory of magnesium ingots is relatively tight, providing strong support at the bottom of the price range. The production halt at dolomite producers served as a catalyst for this round of price increases. The market sentiment tightened due to the production halt at dolomite producers, and downstream customers entered the market to purchase, pushing up prices. As a result, magnesium prices rose accordingly.
In the short term, the magnesium ingot market will remain in a state of tight balance. Low inventory levels will continue to provide support at the bottom of the magnesium ingot price range, limiting the room for magnesium prices to pull back. Considering the continuous negative feedback from bearish signals such as export orders and the significant fear of high prices among traders due to previously accepted low-priced orders, as well as the appreciation of the RMB after the Labour Day holiday, which has made it difficult to take orders in foreign trade recently, demand may weaken. There will be strong resistance to the continuous upward movement of magnesium ingot prices. It is expected that magnesium prices will fluctuate rangebound in the short term.
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