European magnesium prices surged by 80pc yesterday amid supply cuts in China and depleted European stocks, leaving key end-users in the aluminium and titanium sponge industries grappling with rapidly escalating costs and uncertain production outlooks.
The European market was assessed yesterday at $9,000-10,300/t duty unpaid in Rotterdam, up by 80pc from $5,300-5,400/t on 21 September. To put these hikes in greater context, European magnesium prices have spent recent years at around $2,200-2,700/t du Rotterdam, before breaching the $3,000/t mark in May this year.
European traders and consumers have received highly speculative offers this week, but few were considered reliable and underpinned by readily-available prompt material. One trader received an offer at $15,000/t, but was told the supplier was reliant on a trader in China for the material. A secondary aluminium producer received an offer at $11,000/t, but the offer was withdrawn when they returned to give feedback on the price. One trader offered some existing stock in Rotterdam at $9,000/t but then had to withdraw the offer to divert the material towards a long-term contract customer that suffered shipment cancellations. A trader in France did manage to sell 2t at $10,000/t.
"I have nothing available. If I wanted to profit from these price increases I would have to cancel contracts, sell my stock and hope the profits cover the legal charges after. I could charge $15,000/t in Rotterdam, but I couldn't guarantee delivery even at that price," a western European magnesium trader said.
Most traders have severely depleted stocks in Europe for two reasons. When prices rose above $3,500/t du Rotterdam in late-June, most consumers and importers were reluctant to commit to fresh imports from China, lest prices collapse in the following months. Furthermore, magnesium is difficult to store and has a limited shelf life — it starts oxidising after around three months. Any inventory stored in Europe before the price rally began will have already been used or started oxidising by now, leaving the market extremely tight.
Reliance on China punishes EU consumers
Several large primary and secondary aluminium producers and titanium sponge producers let down by their Chinese suppliers have dipped into the market regularly in recent days.
"There's no way anyone will want to rely on China anymore. This is a cataclysmic event. Freight is less to Europe than the US, so hopefully we'll see some switching at Israeli and Russian producers towards supplying Europe rather than the US," a UK buyer said.
Local governments in China have imposed extreme energy consumption restrictions on some key magnesium-producing areas. The government of production hub Fugu county, in Yulin City, ordered 35 producers to close by 22 September. Other production regions including Shanxi, Ningxia, Inner-Mongolia and Xinjiang also face potential disruption in order to hit their energy targets. It is unclear whether the measures will end in October at the start of a new quarter.
Ripple effect as magnesium impacts other metals
The sharp rise in magnesium prices is being felt in other corners of the metal industry, and the physical shortage of material is set to further compound the impact.
Titanium sponge producers have expressed concern about their production going forward. Magnesium is a key raw material for titanium sponge producers in Ukraine, Kazakhstan and Japan. "This magnesium factor is quite critical to sponge producers. A lot of them buy metallic magnesium to reduce to sponge. I imagine we may see some large disruptions to sponge production in Ukraine and Kazakhstan," one sponge trader in Russia said. Producing 1t of sponge typically consumes 1.2-1.5t of magnesium metal.
The impact is already being felt in China. The country produced 11,200t of titanium sponge in August, down by 1,200t or 9.67pc from July when it produced 12,400t, according to Argus data.
Secondary aluminium producers, uncomfortable but willing to absorb price rises, may find their production impeded by a lack of available material in Europe. Surging silicon and energy prices are also increasing costs for European producers. Typical die-casting alloys only contain 0.3-0.5pc magnesium, but it is an essential ingredient. They also contain 9-12pc silicon, a large chunk of the raw material cost.
"Secondary aluminium alloy is going to be a rough world for the rest of the year," a central European smelter said.
Prices for DIN 226 aluminium alloy were assessed at €2,150-2,200/mt on 23 September, up from €1,880-1,930/mt on 1 July when magnesium prices started to accelerate.
