Since May, driven by events in the manganese ore sector, prices of silicon manganese and ferrosilicon have both risen to varying degrees. Unlike silicon manganese, which rose due to raw material shortages pushing up costs, the fundamentals of ferrosilicon have not changed significantly. Supply and demand imbalances are minimal, and although year-on-year inventories are relatively low, they remain at safe levels. Emotionally, influenced by energy-saving and carbon reduction policies, ferrosilicon prices have fluctuated and strengthened.
Looking ahead to June, there is potential for increased supply of ferrosilicon, possibly weakening fundamentals month-on-month. However, cost support from the lower end remains solid, and prices are expected to fluctuate narrowly.
Cost Control for Ferrosilicon:
Costs for ferrosilicon in May showed limited fluctuation and remained relatively stable. Production costs in Inner Mongolia ranged from 5900 to 6100 yuan per ton, while in Ningxia they ranged from 6200 to 6350 yuan per ton. Electricity prices for ferroalloy settlement in Ningxia slightly decreased, while remaining unchanged in other production areas. Coke prices rose slightly along with thermal coal. Both are following changes in the fundamentals of thermal coal. Given safe coal inventories in May, the impact on ferrosilicon costs was limited.
June's ferrosilicon costs are expected to remain relatively stable, with no significant upward movement anticipated, focusing primarily on electricity and coke prices.
Stimulus of High Profits Driving Supply:
Looking back at May, the supply-demand fundamentals of ferrosilicon were weak on both sides without major industry contradictions. On the supply side, production increased by 70,000 tons month-on-month, with significant recovery in production areas such as Ningxia, Qinghai, and Shaanxi, totaling 450,000 tons in the month. On the demand side, increased pig iron production led to increased crude steel production, boosting ferrosilicon consumption. Stainless steel profitability improved month-on-month, increasing both production and ferrosilicon consumption. Downstream demand for magnesium metal remained weak, with flat production performance, exerting limited pressure on ferrosilicon demand. Exports did not show significant improvement in demand from Japan, Korea, and Southeast Asia. Overall, May saw a slight reduction in ferrosilicon inventories, with healthy fundamentals and prices gradually recovering from the bottom.
Looking into June, expectations of continued supply increases due to high profits may be met, while overall demand is expected to remain stable. This expectation of balanced supply and demand may raise questions about inventory reductions, and ferrosilicon fundamentals are likely to weaken compared to May.
Impact of Energy-Saving and Carbon-Reduction Policies:
The recent issuance of energy-saving and carbon-reduction policies has boosted sentiment for ferrosilicon, but actual impact remains limited. Ferrosilicon, as a high-energy-consuming product, experienced price peaks in 2021 due to dual-control policies on energy consumption, which reduced supply and increased costs. However, capacity reduction and replacement have been ongoing since 2021, with smaller furnaces of 12,500kVA and below being phased out. Regions like Inner Mongolia have reduced their reliance on coal for electricity generation, with transformations towards greener energy sources like hydroelectric power in Qinghai and Inner Mongolia. The national carbon reduction policy may have limited impact on ferrosilicon supply.
Conclusion:
The rise in ferrosilicon prices in May was influenced by improved fundamentals and emotional factors related to energy-saving policies. Prices temporarily exceeded the fundamental pricing range and subsequently retreated from highs. In June, while there is potential for increased supply, fundamentals may weaken month-on-month. Nonetheless, strong support from cost dynamics at the lower end is expected to keep prices mainly within a narrow fluctuation range.
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Keywords: Ferro Silicon, Ferrosilicon, FeSi, FeSi 65, FeSi 72, FeSi 75, Ferro Silicon Market, Steel mills
