China's ferro silicon output declines in August as profits shrink

Mysteel: Following three consecutive months of rising production, China's ferro silicon output decreased in August 2024 as domestic smelters began to reduce their production due to a sharp fall in profitability, Mysteel Global notes.

In August, total ferro silicon production among the 136 Chinese smelters surveyed monthly by Mysteel touched 459,700 tonnes (t), marking a notable 9.35% decline compared to July's 507,100 t. These sampled smelters represent 95% of China's ferro silicon smelting capacity.

Among China's five primary ferro silicon production regions-Inner Mongolia, Qinghai, Ningxia, Shaanxi, and Gansu -Ningxia in northwest China reported the steepest m-o-m decrease, with output plunging by 37.26% to 81,600 t.

At the beginning of August, several local smelters in Ningxia faced month-long suspensions due to pollution issues, contributing to the production drop in this key hub.

However, the output reduction in ferro silicon last month had been anticipated. Given widespread losses in steel sales, steelmakers were reluctant to purchase large quantities of ferro alloys, which also led to a slowdown in the smelters' production pace, remarked a market observer.

Mysteel's weekly survey revealed that by 30 August, only 3.9% of the 247 steel mills regularly monitored were making minor profits when selling their finished steel, a sharp drop of 11.25% compared to 25 July.

Ferro silicon bidding prices in August tendered by major Chinese steelmakers further reflected the prevailing pessimism. On 16 August, Hebei Iron and Steel Group (HBIS) announced its tender price for ferro silicon for August delivery at RMB 6,630/t ($935.7/t), a significant reduction of RMB 420/t compared to its July bidding price.

Additionally, weakening prices of semi-coke, a key raw material for ferro silicon smelting, have exerted more pressure on the spot prices of the ferro alloy. Mysteel research shows that as of 5 September, prices of small granularity semi-coke in Shenmu, located in northwest China's Shaanxi province, had dropped by RMB 80/t m-o-m to RMB 790/t, the lowest level in over four months.

Consequently, prices of 75% grade ferro silicon declined by RMB 454/t from 5 August to reach RMB 6,175.3/t exw (including 13% VAT) as of 5 September, according to Mysteel's latest assessment.

Falling spot prices have further eroded the domestic smelters' profits, discouraging them from increasing production. For instance, as of 5 September, smelters in northwest China's Gansu have been coping with an average loss of RMB 195/t on ferro silicon sales, up from just RMB 27/t on 5 August.

Despite these negative factors, some market participants remain hopeful for a recovery in the ferro silicon market this month, anticipating that improvements in the steel market may support prices of raw materials, including ferro alloys.

"China's steel market is unlikely to see a significant surge in production this month, as weak end-user demand will continue to weigh on the market despite the arrival of the traditional 'peak season' in autumn," a Shanghai-based analyst commented. However, she added that any potential rebound in finished steel prices could help reduce losses among steelmakers, creating some room for negotiations between smelters and steelmakers when selling ferro silicon products.