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China: Energy control policies shrink ferro alloys production sharply

The main reason for the price increase is the shutdown limit imposed by various regions under the dual energy control policy, which triggered the market’s expec...

Ferro Chrome
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29 Sep 2021, 19:56 IST
China: Energy control policies shrink ferro alloys production sharply

The main reason for the price increase is the shutdown limit imposed by various regions under the dual energy control policy, which triggered the market's expectations of tightening supply of ferro alloys.

Silico manganese and ferro silicon are widely used as deoxidisers and alloying agents in steelmaking to eliminate excess oxygen and sulphur in molten steel and improve the quality and performance of steel. Therefore, they play an indispensable role in steelmaking. Although the amount used in the steelmaking process is small, its demand is considerable amid the huge steel output in China.

Judging from the survey of completion of Energy Consumption Dual Control Targets in Various Regions in the First Half of 2021 issued by the National Development and Reform Commission on August 17, in the first half of this year, the energy consumption intensity of 9 provinces (regions), including Qinghai, Ningxia, and Guangxi, did not decrease y-o-y. The energy consumption reduction rate in these provinces has not met the requirements, and the country's energy conservation situation is grim.

A study report pointed out that from the comparison of the production capacity ratios of major industrial products in the 9 provinces, it is found that ferro alloys are the first to be affected by the dual control of energy consumption.

In addition, the power gap in Inner Mongolia has not been fully alleviated, and Yunnan, Yulin, Shaanxi and many other provinces have also implemented dual control policies.

It is expected that the scope of manganese and silicon production restrictions may continue to expand, while the market still has doubts about whether the September production restriction can greatly improve in the near term.

Under the influence of the dual control policy of energy consumption, the prices of ferro alloys have repeatedly hit record highs. Among related products, ferro silicon and silico manganese futures currently listed on the futures market have continued to rise, and they have appeared in recent days.

The main silico manganese futures contract has risen by 75.59% this year, and the main ferro silicon futures contract has risen by 118.32%. Over the same period, spot prices also rose sharply.

The expected contraction on the supply side has driven the alloy market to become hot. With the tightening of policies, some alloy companies have successively issued limited production suspension statements.

Outlook

Ferro alloy and other high-energy-consuming power industries seem to be the targets of this large-scale nationwide action.

Since silico manganese and ferro silicon related industries account for less than 1% of GDP, the impact of curbing the output of the alloy industry is relatively small. Under the stiff target of energy consumption reduction in the 14th Five-Year Plan, if there is no advancement in smelting technology to reduce energy consumption within five years, reducing output will be the only way at present. Finally, under the target requirements of carbon peak and carbon neutrality (that is, carbon dioxide emissions will strive to reach the peak before 2030, and achieve carbon neutrality by 2060), the output of the ferro alloy industry is expected to face a relatively strict dual control policy for energy consumption.

It is widely believed that a cyclical upward trend in prices of ferro alloys has started in China, with the profit margins of silico manganese and ferro silicon production companies globally rising considerably compared with the previous years.

 

 

29 Sep 2021, 19:56 IST

 

 

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