Manganese: High stocks put pressure on global prices

During Q3 and Q4 2020, manganese ore prices have softened to around or below US$4/dmtu (CIF China) following the return of South African output to normal at the end of Q2 2020.

Various grades of manganese ore are mined at the Nchwaning and Gloria mines, located in the Black Rock area of the Northern Cape province and manganese alloys are produced at the Cato Ridge Works in Kwazulu-Natal and at the Machadodorp Works in Mpumalanga.

Assmang also have a shareholding in Sakura Ferroalloys, a manganese alloys production facility in Malaysia.

Both are fully integrated manganese alloy smelters as manganese ore feed is mainly sourced from Assmang’s manganese mines. Cato Ridge Alloys, a joint venture with Japanese partners, produces refined ferro manganese.

When the COVID-19 pandemic surfaced, manganese ore prices were already recovering from the low point they slumped to in Q3 2019, moving above US$4/dmtu in early 2020. The mid-year manganese ore price spike reached US$7/dmtu, as a result of South African mining lockdowns between March and April 2020.

According to Roskill, manganese ore prices experienced a gradual softening over the first three quarters of 2019, followed by an accelerated decline in prices that bottomed out at around US$3.50/dmtu (CIF China) for standard-grade ore in November 2019.

The key driver of downward pressure on prices was significant production growth, coming from western African countries such as Ghana and Gabon in addition to South Africa. This was highlighted by the strong increase in Chinese port stocks at the end of 2019 and into Q1 2020, reaching 6Mt.

There has been a generally soft pricing environment since South African output returned to normal at the end of Q2 2020, which has coincided with port stocks increasing over the second half of the year to nearly 7Mt today.

Ore prices at current levels make upper quartile South African output unviable. In the event of further weakening of ore prices in the short-term, lower quartile major ore producers are likely to be incentivised to implement production cutbacks.

Beyond the short-term, it is likely that ore prices will move back up in line with rising production costs, amid higher oil prices and the South African Rand’s ongoing recovery against the US dollar.

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