Afternoon volatility! Ferrosilicon manganese futures prices plunge, market situation is......

On Friday, the main contract for manganese silicon futures surged, rising over 6% at one point during the trading session, but suddenly plunged at the close, ending the day up 3.46%.

Regarding the sharp intraday increase in manganese silicon prices, Peng Bohan, a researcher at Zhongyuan Futures for ferroalloys and building materials, told Futures Daily that the main reason is the renewed disruption in overseas manganese ore supplies. According to Iron Alloy Online, northwest Australia is facing a strong tropical cyclone, “Narelle.” The local meteorological bureau expects “Narelle” to land in Queensland on Friday local time and cross Great Island later on Saturday. So far, GEMCO’s manganese mine on Great Island has not issued a production halt notice, but industry estimates suggest that local mining and shipping activities will pause this weekend, with specific supply reductions and shipment delays to be assessed.

“The tropical cyclone is expected to pass over Great Island, where the manganese mines are located, this weekend, which could impact local manganese production. If mining facilities are damaged, it could cause supply disruptions. The market has priced this in advance, leading to a significant intraday rise in manganese silicon prices. Additionally, South Africa’s electricity price hikes will also affect manganese ore production costs, supporting the distant manganese ore prices,” said Duan Zhizhan, an analyst at Founder Mid-term Ferroalloys.

Looking at the fundamentals, Peng Bohan explained that manganese silicon supply and demand are relatively loose. On the supply side, China plans to add over 3 million tons of capacity by 2026. Since Q4 last year, the operating rate of silicon-manganese producers has been below 40%, indicating significant overcapacity. On the demand side, crude steel consumption is entering a downward cycle following the real estate sector, making it difficult for manganese silicon consumption to grow. However, from a macro perspective, we are currently in a period of anti-globalization, where resource monopolies, supply chain disruptions, and industry transformation may turn mineral resources into bargaining chips among major powers and inflation hedges. Therefore, resource products with high import dependence are more likely to see upward shifts in price levels and increased market volatility in the future, which is one of the reasons for the relatively strong performance of the manganese silicon market this year.

It is also noteworthy that escalating Middle Eastern geopolitical conflicts have led to a sharp rise in crude oil prices, raising concerns about inflation and energy costs.

“Over 60% of manganese silicon production costs come from manganese ore and coal-fired electricity, and rising crude oil prices will increase maritime shipping costs for manganese ore, which is bullish for manganese silicon prices,” Peng Bohan said.

Looking ahead, Peng Bohan believes that with both supply and demand weak, and inventories high, the continued rebound in prices will inevitably stimulate supply growth and institutional selling, thereby limiting the extent of the rebound. Caution is advised when chasing high prices.

“Although cost support is strong, current manganese silicon demand has not grown beyond expectations. If the tropical cyclone does not damage GEMCO’s mine, there is still a possibility of price correction,” said Duan Zhizhan.