Manganese: Linked to steel’s fortunes

Meera Siva | Updated on January 20, 2018

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Manganese supply and demand is seen rising over the next few years

Manganese, a key ingredient for steel making, has been witnessing interesting price action lately. Prices rose briskly from $1,500 per tonne to over $2,000 in 2016, helped by low inventory, tighter supply due to mine closures and some pick-up in Chinese demand.

State-owned manganese producer MOIL increased the price of all grades of ore for the April-June 2016 quarter by up to 50 per cent. Manganese is of relevance to India as the country is the fifth largest producer globally.

Indian industry

Manganese reserves, estimated at 140 million tonnes (MT), are found mainly in Odisha, Madhya Pradesh, Karnataka and Maharashtra. Bulk of the ore is of medium grade, with only 10 per cent being high-grade.

The ore is mainly used for steel production — about 10 kg of manganese is required per tonne of steel. Bleaching powder, fertiliser, insecticides, paints, batteries and china-clay also use manganese.

India does not export manganese ore but processes it to create silico-manganese (SiMn), an alloy of silicon, coke and manganese. Besides SiMn, which accounts for 90 per cent of ferroalloy production, high-carbon ferromanganese (HC FeMn) is also made in India.

India has been the world’s largest exporter of ferroalloys since 2008, beating Ukraine. SiMn exports are primarily to Europe and face strong competition from Ukraine, Norway and South Africa.  Exports have, however, been slowing after 2014 due to falling demand from steelmakers. The European Union started anti-dumping investigations on Indian SiMn exports in November 2015; it concluded with no anti-dumping duties applied.

Current problems

Manganese prices were in an uptrend recently, but there are still some concerns. For one, steel industry accounts for 80-90 per cent of manganese demand and globally this sector is in doldrums. Data from the World Steel Association (WSA) shows that world steel production dropped by 2.8 per cent year-on-year in 2015.

This is adding pressure on manganese ore and alloy prices. Ore prices plummeted from $3,500 per tonne in early 2011 to a low of $1,500 by late 2015. Alloy production also requires electricity and Indian power rates are not competitive. For instance, power cost per tonne of SiMn is over $300 in India, compared to less than $150 in Norway, as per data from CRU, a consulting group.

Given the issues in the power sector, relief from higher power costs may not happen in a hurry, hurting the local manganese alloy industry.

Bulk of the ore is of low quality and alloy producers import higher grade manganese ore rather than buy lower grade ones from local producers. Coking coal is also imported, adding to the cost. While raw material prices have been sliding, conversion costs in India are high — over $500/tonne of SiMn, the highest among competitors such as Norway, South Korea, Ukraine and South Africa. This continues to weigh on exporters.

The rupee’s strength compared to the weakness of other currencies is also not helping. Conversion costs are expected to increase for all producers, but the currency’s strength is expected to make Indian exports uncompetitive (except against South Africa where power costs are expected to increase) globally in the next few years. This could dampen manganese ore demand from exporters.

Currently, manganese ore supply in India exceeds demand by 40 MT, as per HDR Salva, a consulting firm. However, it is estimated that supply and demand will increase in the next few years and will reach a balance by 2020.

Plus factors

Demand from the Chinese steel industry is expected to look up and estimated to grow at 5 per cent annually over the next few years, projects HDR Salva. Improving steel demand could aid manganese demand and price.

Also, locally, Indian steel output increased 2.6 per cent to nearly 90 MT in 2015 and the country became the third largest steel producer, displacing the US.

Data from the Ministry of Mines estimates that based on expected jump in local steel production, there could be a shortage of manganese by 2020 — production is estimated to be about 5 MT, while demand will be about 9 MT.

Local steel output growth could boost both sale volume and price of manganese ore.

The trend towards electric and hybrid vehicles that use rechargeable lithium batteries also bodes well.

These batteries use manganese anode, creating robust demand for the mineral. So, while prices will not take flight quickly, the mineral’s downside price risks certainly seem limited.

Published on June 05, 2016

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