MANGANESE ORE IMPORTING REVISION IN CHINESE MARKET IN 2006

1.    Chinese manganese ore importing was keeping increasing.

(KT)

2.    Five key reasons for Chinese manganese ore importing increasing in 2006.

(1)   The improving of crude steel `s output lead to the increase of the importing manganese ore.

Chinese steel production keep improving steadily in recent years, the output was increased from 349 millions tons in 2005 to 418 million tons in 2006. The ferroalloy plant finds the market potential and expands the production, although the profit is not good. The need of raw materials makes the manganese ore importing amount keep increasing.

(2)   The shrink of domestic manganese ore make ferroalloy plants ore rely on imported manganese ore more.

The production of domestic manganese ore decrease in recent years, and domestic manganese ore are not stable for using. Because of the rise of electricity price, ferroalloy plant increase using imported ore instead of domestic ore to reduce the cost. Especially in ShanXi Province, in a bid for higher competitiveness, although some plants have their own mine, they keep increasing the usage of imported ore to reduce the cost.

(3)   The import price of manganese ore reached the bottom in the beginning of 2006 and stimulated the import amount.

Because the ferroalloys` situation remained harsh from the end of 2005 to the beginning of 2006, mining company reduce the sale price to ensure their sales. In this case, the traders increased the purchasing quantity, stock up ores on Chinese port to wait for the price to rebound.

(4)   Some mining companies directly stock up manganese ores on Chinese port and increase the import amount..

Manganese ore suppliers around the world believe that there is a large demand for manganese ore in Chinese market because of the continuous increase of the steel output in China. These companies stock up some ore on the port for sale .And some small mining companies intensified the sell efforts on Chinese market in 2006, the supply of Philippine manganese ore and ores from The Republic of Cote d'Ivoire are gradually increased.

(5)   After some ferroalloy plants` reorganization and reshuffle in the beginning of 2006, some furnaces opened again. It led to the increase of the demand of imported manganese ore ,, then the increased output of ferroalloy caused the ferroalloy price decreased..

3.    The increasing of imported manganese ore put the Chinese Mn-alloy production in a hidden trouble.

The increasing of imported manganese ore in 2006 influenced the Chinese manganese ore importing.

(1)   First, lots of ferroalloy plants rely on the imported manganese ore. If the ore supply problem arose, Chinese ferroalloy industry would face crisis. It is a big demand for Mn-alloy in Chinese market for the big output of crude steel. The lack of imported manganese ore definitely caused the Mn-alloy`s output decrease. In such case, China can only import Mn-alloy from foreign plants to meet the demand.

(2)   In recent years, not only the manganese ore, but also the import of iron ore and other kinds of ores go up sharply. The circumstances stimulate development of marine transportation, the freight keep going up. Obviously, the demand of ores is an important factor which influences the freight. The cost (freight) goes up, and then the price of manganese ore goes up too. For example, in the first quarter of 2007, lots of mining companies have raised the manganese ore price. The main reason is the increasing of freight.

(3)   The increasing of imported manganese ore make the mining company feel that there is big demand in Chinese market. Demand determines market, and then the mining companies have reason to raise the price. But the fact is that in China Mn-alloys` price have not be raised, then, the ascending ore price is a high cost pressure to alloy industry.

4.    The proportion of different manganese ore suppliers changes gradually.

There is a trend of importing manganese ore in recent years because Chinese domestic manganese ores can not meet plants` requirements, not only in quality but also in quantity. The increasing output of steel and ferroalloy make China become one of the biggest manganese ore importers around the world. More and more new mining companies want to enter Chinese market, and this is potential factor of the increasing quantity. The production of some big mining companies decreased in 2006. For example, compared with Q1 to Q3 in 2005, CVRD reduced 31percent of its production in 2006. The reduction of these big companies gives the opportunity to the smaller mining companies to enter Chinese market. If manganese ore price keep going up in 2007, more mining companies can get profit from Chinese market. There will be fierce competition.

CHINA – Manganese Ore Major Suppliers’ Market Share

(2003-2006)                    KT

5.    The problem facing some ferroalloy plants.

(1)The rise of electricity price. In Mn-alloy production, electricity is one of the main costs. In some plants, the electricity price reached RMB0.45/kwh. Although the price in Inner Mongolia is more reasonable, it reached RMB 0.337/kwh. The frequently failure of electric power make some northern ferroalloy plants increase the cost, so some plants can not pay for the electricity.

(2)The increasing 0f export customs duties effects iron alloy factories a lot.On November 1, iron alloy export tax is 10 percent, which made the iron alloy industry  worse and worse. Limited export directly effected the sell of iron alloy greatly in China. A lot of factories had to sell their stock at a low price.

(3) Due to the control of the iron alloy factories by the government, some small factories will disappear next year.This year, the development and reform committee of the state has announced the second group admittance list . There are still a lot of iron alloy factories waiting for the admittance. In this stagnant situation, producers have no money to rebuild their factories. It can be estimated that many iron alloy factories can not pass the checkup next year.

In a word, most iron alloy factories have a lot of problems and difficulties in China. Compared to iron alloy market, manganese ore price is very high. With increasing electricity price, limited electricity , increasing freight cost, domestic sell price in downturn, fund problem appearing,  the industry will suffer another reshuffle. As we all known, the production technology of silicon-manganese and ferromanganese iron is not good. When the market becomes better, many merchants will invest in this industry. Only a little change in ferrosilicon stove or calcium carbide stove will be enough to produce silicon-manganese alloy. Recently, plenty of iron alloy factories in the northeast have stopped to clear up their stock with a low price.

In 2006, the whole amount of importing manganese ore in china has kept continuously increase as years before. Manganese ore price went up steadily from a low point. By the fourth season, the abroad manganese ore price was so high that iron alloy factories could hardly stand it. Because of the big change in manganese ore market in the end of 2005, both manganese ore importing merchants and iron alloy factories didn’t order much manganese ore. In the first season of 2006, the manganese ore market is as common as usual and every factory demanded more manganese ore. By the fourth season, the consumption speed of manganese ore became much slower than the importing speed of ore merchants. The stock in ports became bigger and bigger and the consumption of manganese ore became slower and slower. In a word, it can be expected that the manganese ore import and the crude steel production will increase. But, because of so many problems in iron alloy industry and the enormous increase in 2006, the import amount of manganese ore will be affected in some degree.

The perspectives of importing manganese ore in 2007

1: In 2007, China will still keep a high amount of importing manganese ore

In the year 2007, with the increasing of crude steel production, there should be a little increase in importing manganese ore in China.

2: Mining Company continuously raising the price will break the present balance in the marketplace

   Many mining companies have indicated that they will raise the manganese ore price. On the one hand, with the big increase in sea freight and the continuously increase of the demand in various ore by China, some manganese ore suppliers can’t get a long term contract to rent ships. On the other hand, the manganese ore price is very high in Europe and Japan and China imports a large proportion of manganese ore from each mining company, so, in order to get certain profits, mining companies may increase their price in China. The problem is that if the abroad manganese ore price raises, how about the price of the domestic manganese ore? If the domestic ore price rises, factories can’t accept it certainly. If keeping the original price or reducing the price, there will be little profit and a lot of merchants will reduce or stop replenishing their stock.

In 2007, the crude steel production will be increased a lot in China and the amount of importing manganese ore should be increased as well. But if the manganese ore price keeps rising, there will be some situations as follows:

1.    The abroad ore price will increase. Cost reduction is a main task for many iron alloy factories, so they will reduce the use proportion of abroad ore and increase the use quantity of domestic ore and rich-manganese slag. This situation may stimulate the exploitation quantity of domestic ore.

2.    When the ore price goes up to certain degree, many new mining companies have got a lot of profit and manganese ore supply is no longer in short. Finally, there will be excessive ore supply in the market and there will be more stocks in the port.

3.    With ore price increasing, many private iron alloy factories can’t stand continuous loss, some factories haven’t be admitted by the industry admittance principle, so they have to stop production. Finally, the consumption speed of manganese ore will come down.