Chinese ferro-silicon prices are expected to rise in the short term due to increased production costs from the government's carbon reduction plan. On May 29, the State Council of China announced an action plan for energy conservation and carbon reduction for 2024-25. This plan includes suspending preferential electricity prices for energy-intensive industries like ferro-silicon and aims to curb overcapacity in the semi-coke industry.
Over the past two months, ferro-silicon prices have been on the rise, driven by recovering demand from the downstream steel industry and higher feedstock prices for semi-coke. Ferro-silicon producers reduced production in the first quarter to cope with negative production margins.
According to international prices, the price of 72% grade alloy was 6,900-7,100 yuan/ton ($953-981/ton) ex-works on May 30, the highest level since September 2023. Most producers have suspended price quotations to see how the carbon reduction plan will affect alloy prices.
A representative from a Shaanxi-based producer stated, "Electricity costs account for more than 50% of alloy production costs, and semi-coke accounts for about 30%." The representative predicted prices could reach 8,000 yuan/ton in the short term. The industry estimates that producing one ton of ferro-silicon in China typically requires 8,000 kWh of electricity and 1.2 tons of semi-coke.
Currently, buyers and traders are beginning to stockpile alloy, while producers are delaying sales in anticipation of higher prices. Some steel mills have started tender procurements for June delivery, with provisional tender prices rising to 7,400 yuan/ton, about 400 yuan higher than May's purchase prices.
The carbon reduction plan has also positively impacted the financial market. The September contracts for 72% grade alloy on the Zhengzhou Commodity Exchange surged to 7,824 yuan/ton on May 30 and further to 7,996 yuan/ton on May 31. Many participants are taking long positions, indicating expectations that ferro-silicon prices will continue to rise in the short term.
Export prices for 72% grade alloy were assessed at $1,290-1,340/ton FOB on May 30. Trading houses have received more inquiries as overseas buyers are eager to secure supplies and are urging suppliers to deliver orders signed this month to avoid a steep price rise.
International buyers maintained steady purchases during the first four months of this year to guard against a supply shortage. China exported 151,418 tons of the alloy during January-April, up 3.4% from 146,488 tons a year earlier. April exports increased to 39,516 tons, up around 10% from 35,938 tons the previous year and up 6% from 37,283 tons in March. Export firms expect May shipments to continue rising due to increased demand driven by the carbon reduction plan.
Additionally, international prices for 75% grade alloy were 6,900-7,100 yuan/ton ex-works on May 30, the highest since October 2023. Export prices also remained steady at $1,370-1,420/ton FOB in line with domestic prices.
The potentially higher prices of ferro-silicon feedstock have also boosted magnesium prices. The price range for 99.9% grade metal assessed by Argus rose to 18,700-19,200 yuan/ton on May 30, up 200 yuan/ton today.
The carbon reduction plan's phaseout of semi-coke overcapacity may limit magnesium producers' in-house semi-coke production. Most magnesium producers in Shaanxi province have in-house semi-coke production units.
Shaanxi's Yulin city, home to the majority of China's magnesium and semi-coke producers, produced 8.37 million tons of semi-coke during January-March, up 1% from 8.29 million tons a year earlier. Yulin's magnesium metal output rose to 159,000 tons during January-March, up about 15% from 138,800 tons a year earlier.
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