On Monday November 26, trading was suspended for the ZCE’s most-traded January silico-manganese futures contract after the price of the contract plunged by 7.1% from the previous trading day’s close.
The contract stood at 7,824 yuan ($1,126) per tonne when trading was suspended on Monday, down from a closing price of 8,448 yuan per tonne on November 23. The contract has recovered slightly in recent days, closing trade on Wednesday at 7,902 yuan per tonne, but remains significantly lower than levels seen last week.
Chinese silico-manganese futures prices have been largely bullish this year, trading above 8,000 yuan per tonne, partly spurred by rising demand for manganese ore
from smelters and steel mills.
Participants from across the manganese chain were fully in agreement that the sudden drop in silico-manganese futures prices in China was due to the weakness in domestic Chinese rebar prices, which has driven traders to take up short positions on silico-manganese futures contracts on the ZCE.
“We heard steel bar spot prices have fallen by up to 700 yuan per tonne from the start of November until now and this will definitely have an effect on raw material prices such as silico-manganese, iron ore and coal,” a trader said.
Fastmarkets’ northern China Tangshan domestic billet price
was at 3,050 yuan per tonne on Wednesday, down 23.4% from 3,980 yuan per tonne at the start of the month.
The trader attributed the tumble in steel prices to less stringent cuts in steel production mandated by the Chinese government for winter this year. The central government typically orders the suspension of approximately 30-40% of steel capacity in Tangshan during the country’s winter months (November to March), but so far this year cuts of only 15% of steel capacity have been imposed
Short-selling worsens situation
Further exacerbating the situation is reported short-selling of silico-manganese futures by traders in anticipation of falling physical silico-manganese prices.
“Quite a few traders have been short-selling silico-manganese futures aggressively, which further pushed the price of silico-manganese futures down,” the trader said.
This short-selling of silico-manganese futures is also expected to affect sentiment for manganese ore prices and push down prices, which have been rangebound for the past few weeks
Fastmarkets’ 44% manganese ore index, cif Tianjin
inched down 1 cent week on week to $7.17 per dry metric tonne (dmtu) on Friday November 23. Fastmarkets’ 37% manganese ore index, cif Tianjin
edged up 1 cent for the third consecutive week to $6.84 per dmtu.
Meanwhile, Fastmarkets’ 37% manganese ore index
remained unchanged week on week at $6.04 per dmtu fob Port Elizabeth.
“There has been a global sell-off this week, even outside of the ferro-alloy markets, such as for methanol, coal, iron ore and rebar,” a second trader said.
Sentiment is weak and most market participants do not see the steel market becoming positive until next year.
“Steel mills are beginning to lose money because their sales are falling a lot due to the lack of demand and excess supply,” a steel mill said.
Effect on December silico-manganese tenders
“With less [steel] production cuts, steel supply will be higher, which will pressure steel prices down and this in turn has started to affect their demand for steelmaking raw materials, such as silico-manganese,” the steel producer said.
“Tenders for silico-manganese are due to be out this week but now I doubt there will be large tenders this week and maybe, steel mills might not announce tenders so soon for fear of incurring more costs,” the producer added.
While silico-manganese spot prices
were still largely stable week on week at 8,400-8,500 yuan per tonne in-warehouse China on Friday, the steel producer said he expects spot prices to fall in December.