Metal Bulletin can confidently state that this time last year, few people – if anybody – thought that manganese ore prices would hit $9.00 per dmtu just twelve months after sinking to multi-year lows.
If anybody did, they kept it quiet for good reason, because there was money to be made by betting against expectations.
This year kicked off with 37% manganese ore at $1.38 per dmtu and 44% manganese ore at $1.86.
This compared with $3.21 and $4.29 per dmtu, respectively, at the start of 2015; these values were also the highs for that year.
Prices were below production costs in late 2015, prompting miners to implement the production cuts, which set the scene for tighter supply and the resultant price increases – and bargains for shrewd traders in China.
In an exact reversal of the previous year, prices dropped slightly in the first week of January 2016 and never returned to those lows, instead climbing sharply in March as traders and consumers restocked.
There were contract reneges
as some manganese alloys suppliers refused to honour agreed prices after soaring manganese ore prices pushed their costs up.
This was another reversal of the previous year’s events, in which manganese ore consumers had walked away from some ore deliveries because price rises meant the cargoes were no longer worth the figures arranged for letters of credit.
By late March 2016, producers were warning that ore prices were overheated and unsustainable
The increases made suppliers nervous; they feared smaller producers would reverse earlier production cuts, flooding the market with cheap material and crashing the market all over again.
Producers were reported to be rejecting the highest bids they received in order to curb the rally. They responded to such claims by blaming traders for the rally, saying the traders had been sitting on material to force prices up so they could take profits later.
Prices started falling back in April as restocking slowed and many market participants thought the upside had finished.
Research by the International Manganese Institute showed the market deficit in April
was roughly half that of March.
But by June, unbeknownst to most market participants, traders in China were building large forward positions at bargain prices, squeezing the market by tying up large volumes of material in inventories.
Stronger demand in China and the impact of the production cuts were the perfect backdrop for the real drama, which came in October
when it became clear that a significant proportion of stocks in Chinese ports were in strong hands.
Port stocks led the rally, leading end-users to seek material directly from miners. Traders continued to source fresh cargoes too, creating an “arbitrage” between seaborne cargoes and material already in ports.
The arbitrage was short-lived as miners hiked their own prices, initially because they could and later because they had to; logistics disruptions in South Africa led to rail cancellations, shipment delays and soaring costs for miners to export their material.
It was a tough time for manganese alloys market participants because for the first ten months of the year, alloy prices did not react; smelters just had to absorb higher input costs and accept stable prices for their own product, or simply shut down.
Manganese alloys prices jumped at last in late October, and by December both silico-manganese and ferro-manganese were trading as high as €1,300 per tonne.
Ore prices eventually got to a level
at which miners could afford to employ more expensive transport and shipping options, such as trucking or using a smaller port.
All year, producers remained nervous
about prices potentially overshooting and crashing, or about prices dropping while their material was on water, sparking reneges in China.
The rally broke in early December
but market participants said at the time the drop was a correction, not a crash.
Indeed, the markets have stabilised since both high-grade and low-grade prices have recovered some of the lost ground.
Manganese ore market participants are cautiously optimistic that prices will hold at today's levels into 2017, but they recognise that profit-taking remains a risk, particularly around Chinese New Year.
Manganese alloy market participants seem confident that prices for those products will hold; they said the extent of the ore price rally has yet to be priced in, meaning fresh material will carry even higher costs, resulting in further price rises.
As it stands, 37% and 44% manganese ore have ended the year up 446% and 398%, respectively.
Silico-manganese and ferro-manganese are up 118% and 105% respectively, year-on-year in Europe.
Stay tuned for Metal Bulletin’s final pricing of 2016 on Friday December 23.