Power tariff hike puts pressure on manganese producers
Shanghai. December 6. INTERFAX-CHINA - Last week's hike in power tariffs has upped the pressure on China's manganese industry, but healthy stockpiles held by large traders and producers will help delay the effects, analysts told Interfax this week.
The National Development and Reform Commission (NDRC) raised industrial, commercial and agricultural power tariffs by an average of RMB 0.03 ($0.005) per kilowatt hour (kWh) effective Dec. 1.
China's deposits of maganese, mainly used in the production of stainless steel, special steel and carbon steel, are mostly located in south central China in the provinces of Hunan and Guizhou, along with Chongqing Municipality and the Guangxi Zhuang Autonomous Region.
These places saw above-average power hikes of RMB 0.037 ($0.0058), RMB 0.0499 ($0.0079), RMB 0.0378 ($0.006) and RMB 0.0353 ($0.0056) per kWh, respectively, increasing production costs for manganese iron by an average of about RMB 125 ($19.74) per ton and electrolytic manganese by around RMB 215 ($33.95) per ton.
Electrolytic manganese production costs now stand between RMB 16,000 ($2,526.29) and RMB 16,500 ($2,605.24) per ton, above the current market price of around RMB 16,000 ($2,526.29) per ton, Jiang Hanmei, an analyst with SMM Information Technology, told Interfax.
The weak performance of the stainless steel sector this year has made it difficult for producers to pass extra costs downstream, Jiang noted.
Most stainless makers are operating in the red and are holding back on raw material purchases, said senior Mysteel analyst Yu Liangui. The price of 304# stainless steel has fallen to around RMB 20,000 ($3,157.87) per ton at present from about RMB 27,000 ($4,263.11) to RMB 29,000 ($4,578.90) in February.
Manganese inventories among producers and large traders are likely to remain high into the first quarter (Q1) next year, to some extent insulating the industry from the effects of rising production costs, according to Lange Steel analyst Ding Yongheng. China's tight monetary policy, however, has limited stockpiling among small traders.
A trend for relocating production to cheaper parts of the country, as seen in the aluminum industry, is unlikely to emerge in the manganese sector, said SMM's Jiang.
"China's manganese resources are concentrated in Hunan, Guizhou, Chongqing and Guangxi, and it isn't viable for producers to move into areas that lack deposits," the analyst said. While power accounts for about 40 percent of aluminum production costs, the figure is only 29 percent for manganese, with manganese ore accounting for more than 50 percent.
West China's Xinjiang Uyghur Autonomous Region offers the only viable option for relocation, according to Jiang. It has some manganese reserves, and many steelmakers have begun to build capacity there, so manganese producers could stay close to buyers and cut transportation cost. The region is also rich in energy resources and enjoys low power tariffs.
Baoshan Iron Steel Group (Baosteel), Shandong Iron Steel Group, Xinxing Pipes Group, Shoudu Iron Steel Group and Jiuquan Iron Steel Group have set up steelmaking units there.
- KHM
