Heatwave Hits: Hidden Costs of Smelters Rise, Magnesium Prices Find Stronger Support at Bottom

Since July, high temperatures have swept across most parts of the country, driving electricity consumption to record highs. Additionally, amid the significant increase in energy consumption such as electricity and water use, the persistent heatwave has inevitably driven up the hidden costs of enterprises. According to SMM, coal, which accounts for a major portion of magnesium ingot's energy costs, has seen raw coal prices bottom out and rebound since July due to the increased demand for thermal power. On the other hand, the unbearable heat in production workshops has led to an increase in employee leave frequency and extended smelting cycles, further increasing hidden costs.

The coal market has recently shown signs of recovery. Affected by the persistent high temperatures nationwide, the increase in electricity demand has significantly driven up the load on power plants, prompting them to actively increase their purchases of market coal. From the supply side, coal transportation in the main producing areas remains smooth, and overall inventory levels are within a reasonable range. Analysis suggests that coal prices may maintain a mild upward trend in the short term, and future market trends will need to focus on two key factors: the persistence of extreme weather conditions and the actual inventory replenishment needs of end-users.

The current ferrosilicon market is experiencing a tug-of-war between sellers and buyers. From the supply side, spot supply in some main producing areas is tight, and factories are maintaining a production mode based on order scheduling. Although tender prices have seen a slight MoM increase, the decline in electricity prices and semi coke prices has weakened cost support. On the demand side, amid the traditional consumption off-season, end-use demand is weak, and buyers generally adopt a wait-and-see attitude, with a clear intention to drive down prices and limited actual restocking needs. Overall, the market is in a volatile pattern with "pressure from above and support from below," and it is recommended to closely monitor the restocking rhythm of steel mills and changes in energy prices in the future.

Overall, the magnesium ingot smelting industry has recently shown notable characteristics of rising costs and pressure on profits. The price gap between rising upstream coal prices and falling semi coke prices has directly pushed up coal gas costs. Additionally, the decline in labour efficiency due to high summer temperatures has led to a slight increase in the production cost per tonne of magnesium. According to the latest weekly data from SMM, the average profit in the magnesium industry has narrowed to 387 yuan/mt this week. The current market presents a typical "strong cost, weak demand" game pattern. Although smelting costs provide a floor for prices, influenced by the reduction in overseas orders and the wait-and-see sentiment in domestic procurement, it is expected that magnesium prices will remain within a fluctuating rangebound of 200-300 yuan/mt in the short term.