HomeGAA in the MediaPress ReleasesNewsArchiveUS bulk alloys prices may be unsustainable in H2: sources

 

Platts
April 21, 2014
By Anthony Poole

 US bulk alloys prices may be unsustainable in H2: sources

Firm pricing in US manganese alloys markets may be unsustainable in the second half of the year, according to some market participants, who see supply constraints easing.      

According to some, prices could even come under some form of downward pressure as early as May, although others believe the market may have reached a plateau with nothing fundamentally to push prices either higher or lower.   

Several site the return of production of silicomanganese in the US by Felman Production, which is expected sometime in the next month or so, following a concession granted to the company on power rates and also a new labor deal ratified at the end of last week by unionized employees at Felman's New Haven, West Virginia, plant.   

"We can see a price drop [in bulk ferroalloys], or we are expecting a price drop, if not in the next one or two weeks, then from May onwards," said a raw materials procurement manager at one major steelmaking group.     

He said the fall in manganese ore prices globally was because of poor demand for manganese alloys generally, but, especially in China, which could mean pressure to export more manganese alloys to the US and erode prices.         

"We see that China is not doing as well as expected," the buyer said. "Today, China is producing at an annualized rate of 760-770 million mt, which could be a bit under last year or, best case, 3% growth. These are just a few of the signals that we are getting that we can expect a price correction on silicomanganese."      

Weakness in silicomanganese prices in Asia, and elsewhere, have been cited by several market sources as the main factor exerting downward pressure on manganese ore prices.

The Platts daily assessment for high-grade manganese ore (44% Mn) ended 2013 at $5.18/ dry metric ton unit and has fallen to $4.70/DMTU, which was reached on April 8, and has held at that level since.

But, in the US, silicomanganese prices have risen, which could attract more imports, according to market participants. US silicomanganese prices ended 2013 at 53-54 cents/lb, in-warehouse major US hubs basis, reached a level of 60-62 cents/lb on March 19 then eased back to 59.50-62.00 cents in late March, and have stayed at that level since, according to Platts assessments.       

US silicomanganese prices saw upward pressure in the last quarter of 2013 and the first quarter of this year on a combination of several large steelmakers choosing not to cover their requirements in 2014 on a long-term basis and, instead, buying on a quarterly basis, and the absence of Felman Production, which stopped producing silicomanganese in the US at the end of June last year.  

Felman, along with parent company Georgian American Alloys, had an estimated US market share of just over 50%, with the West Virginia production accounting for about 25% of US market share and the rest accounted for by imports from Georgia.  

This year, Felman has been seen buying silicomanganese to enable it to meet its long-term contractual obligations. However, several large steelmakers, where Felman was the incumbent supplier in previous years, chose not to sign long-term supply agreements with other producers and suppliers.  

The raw materials buyer said his annual requirements had since been covered on long-term contracts. "But we [still] go to the spot market as a choice to check the market, and that's all," the buyer said.      

Another raw materials buyer for a specialty mill agreed that the current level of silicomanganese and high-carbon ferromanganese pricing was unsustainable. "If Felman is coming back, and it seems like they are, then, at the very least, the price of silicomanganese can't go any higher, especially as the second half of the year is seasonally weaker in the American steel industry," the buyer said.

Both buyers agreed that while spot and quarterly demand for silicomanganese and high-carbon ferromanganese had been higher in the first half of this year, the overall level of consumption by the steel mills had not changed.

"The industry has been running at about 76% [capacity utilization] so far this year, which is about the same as was seen in the same period last year. And that's not taking into account the recent outages at US Steel," the second buyer said. "The specialty mills and the SBQ mills are doing better, and the stainless business is much better, but the carbon steel market isn't any better and the overall demand for raw materials is no better. The only difference is that there's been more spot and quarterly buying this year."         

Logistical bottlenecks           

Other factors that have supported ferroalloys pricing so far this year have been transportation disruptions caused by a harsh winter, which had a major impact on barge movements on the Mississippi River system and on road trucking.   

A trader said that barge backlogs were slowly clearing. "I've been getting barges through to Chicago for about a month now; but I had nothing from the first week of January to the last week of March, because the Chicago River had about 8-to-10 inches of ice on it," the trader said.        

A second trader agreed that delays on the Mississippi were easing. "There's been a big improvement in barge availability since the end of March, although things are still tight," the trader said.

"Things have been slow on the river since November: first it was the grain season, then in January we had the ice and then barges weren't just slow heading north, they were getting stuck in the wrong places and you couldn't load down in New Orleans. My problem wasn't Chicago; I had enough material there. My problem was Pittsburgh, because barges were stuck going to Chicago, with other companies' cargoes, and I needed barges to load in New Orleans to take stuff to Pittsburg

While barge congestion may be easing slightly, the availability of trucks is still a problem, especially for long hauls, according to the first trader. "The most common problem we kept hearing about was frozen fuel lines in the really low temperatures," the trader said. "It was the most frequent reason given as the cause of delays, more so than snow and ice."

The trader said the situation had improved marginally. But the severity of winter "masked a much bigger problem, and that's the chronic shortage of drivers willing to do long distances. It's a shrinking pool and when drivers retire, they're not being replaced by a younger generation, because new regulations have made it an unattractive proposition."  

He said industries across America were competing "for the same diminishing pool of available drivers and trucks and this problem is only going to get worse."           

Other supply-side sources also said that logistical bottlenecks remained in place. "The problems with trucking will, in my view, put a floor on the price of several bulk commodities, because it's just not easy to get material moved from A to B. There was a time when a mill could call me and say, 'I need a truckload of ferromanganese first thing tomorrow morning,' and I could deliver, even if it meant charging a hefty premium. Nowadays, I can't give any such guarantee without making several calls to see if I can get a truck and, oftentimes, I can't do it the next day, no matter how big a premium my customer is willing to pay," said a producer source.

Given the ongoing logistical bottlenecks in the road freight system, supply-side sources believe there is little downside risk to pricing. "Maybe we will see some prices come off during the summer, but I don't believe it will be a collapse, and I don't believe we'll get back to the low points of last year again, either," said the first trader. 

A third trader concurred there was limited downside. "I don't see the downside, except for maybe a bit on silicomanganese, and only because Felman won't need to keep covering their contractual commitments. But I don't see it on ferromanganese, because we've just come off a sustained period where the producers have been losing too much money at pricing that's not too far below where we are today. And those producers aren't going to give up their recent gains easily," he said.

He added that there could be some upside pressure on pricing in the fourth quarter as steel mills were likely to push for higher levels of long-term supply cover. "I think there were some mills who found themselves buying quarterly this year when they would have preferred not to, and I don't think they much liked the experience," the trader said.