Raw material prices are under pressure, and the average profit of the magnesium ingot industry fluctuates at highs [SMM analysis]

According to SMM, ferrosilicon and coal, which account for the majority of the raw material costs for magnesium ingots, have seen raw material prices remain in a sluggish state since the beginning of this year due to the loose market supply. On the other hand, due to the relatively concentrated maintenance and production cuts by magnesium ingot enterprises, the supply of magnesium ingots has been tight, leading to an upward trend in prices and an expansion in the industry's average profitability. As of the end of June, according to SMM's weekly cost-profit model, the industry's average profitability for magnesium ingots expanded to 1,758 yuan/mt.

The current raw coal market is characterized by "high profits driving high production and high inventory suppressing prices." Despite coal mines' profitability remaining within a reasonable range, enterprises have continued to maintain a high-production strategy, leading to a rapid increase in social inventory to historical highs (as of the end of June, coal stocks at key power plants exceeded 120 million tons). The supply-demand imbalance in the market has significantly intensified, and prices have formed a unilateral downward trend. Looking ahead, although seasonal demand such as summer peak consumption will still provide support, under the dual pressures of sufficient capacity release (new approved capacity exceeding 200 million tons/year in 2025) and coal import supplementation (imports increased by 15% YoY from January to May), the price center of raw coal may continue to decline. It is recommended to pay attention to the implementation of production restriction policies at the origin and the pace of demand recovery for non-power coal.

The current ferrosilicon market is still deeply trapped in an overcapacity dilemma, with the industry's operating rate continuing to be dominated by profitability levels. Demand in the construction and building materials sector remains sluggish, and domestic demand in the manufacturing sector shows signs of marginal weakening, while uncertainties and risks in overseas demand are accumulating. In contrast, the direct export volume of steel is expected to remain high and stable. Overall, it is difficult to see substantial improvements in the supply-demand imbalance in the ferrosilicon market in the short term, and prices may continue to face downward pressure.

Under these circumstances, the spot price of magnesium ingots has come under pressure and pulled back, declining by 1,000 yuan/mt compared to the end of May. As of now, the industry's average profitability for magnesium ingots still stands at 1,758 yuan/mt, and the operating capacity of magnesium ingots is expected to continue increasing. With the rebound in spot supply of magnesium ingots, spot prices have shown a downward trend, and the industry's average profitability for magnesium ingots is expected to narrow subsequently. It is necessary to continuously monitor the production dynamics of magnesium ingot enterprises and the cost-profit situation of magnesium ingots.