China's magnesium supply for rest of 2021 to lag demand: sources

China's magnesium supply for the rest of 2021 is expected to lag demand after a clampdown on energy usage in September resulted in underutilization of smelters' output capacity, leading to a sharp dip in the growth of magnesium output at a key hub in the country, industry sources said Nov. 3.

The magnesium output from Yulin in China's Shaanxi province over January-September rose only 3% on the year to 416,800 mt, latest data from China's National Bureau of Statistics showed.

The growth in Shaanxi's year-on-year output over January-August was much higher at 9.9%.

September setback

China's magnesium production suffered a setback in September after the country started cracking down on energy-intensive industries, rationing power for industrial production.

On Sept. 13, China's National Development and Reform Commission issued orders to the magnesium industry in Yulin to cap output or suspend operations as part of plans to cut emissions and save energy. The order covered over 40 producers in Yulin.

In September, Yulin's magnesium output reached 34,900 mt, down 6% from August and 35.7% below the year's peak output of 54,300 mt seen in June, according to NBS data.

Yulin's share in Shaanxi's magnesium output has risen from 78% in 2011 to now accounting for almost all the province's production, according to data from government and China Nonferrous Metals Industry Association, or CNIA. Shaanxi remains a major magnesium hub, contributing to about 60% of output in China.

Based on Shaanxi's output cut of 50% during September-December, and keeping other factors unchanged, China could lose around 120,000 mt of magnesium output in 2021, according to Shenzhen-based Guotai Junan Futures.

In 2020, China produced 961,000 mt of magnesium, according to CNIA data. China's magnesium smelting sector's run rate was at 50.4% in September, falling 6.37 points from August, and down 11.11 points from levels seen a year ago, data by Shenzhen-listed information services company Zhejiang Netsun showed.

Chinese domestic magnesium ingot saw a broad range of prices in September. The levels ranged from Yuan 30,500-71,200/mt ($4,762-11,116/mt), with the September average price at Yuan 41,751/mt, more than tripling on the year, according to CNIA. Over January-September, the average price of magnesium ingot was Yuan 20,424/mt, up 51% on the year, CNIA data showed.

According to the association, Chinese domestic magnesium prices hit an all-time high of Yuan 71,200/mt in September, attributing the spike to rising feedstock costs and energy usage restrictions, which squeezed supply.

October levels

Magnesium producers in the Fugu County of Yulin have gradually resumed production since Oct. 1, CNIA said.

During the first half October, the Fugu magnesium sector's run-rate hovered around 40%, with producers insisting on healthy prices on limited spot supply. Sources told S&P Global Platts that in the second half of the month, some Fugu producers hiked run rates.

A Shaanxi trader said that although some producers in Fugu stayed shut in October, others had ramped up to 70%-80% of full capacity.

"Current spot ingot supply is not much, while demand is just [reasonable]," the trader said.

During January-October, China's magnesium demand was at 344,000 mt, with estimated magnesium output of 691,000 mt and exports at 347,000 mt. This implied a relatively balanced supply-demand situation in the period, an analysis of CNIA data showed.

Industry sources said Fugu's magnesium sector run rates during the winter heating season that started in November will run through February 2022 would depend on how strict the energy controls would remain in the coming months.

Although some market players said the Fugu magnesium sector run rate could dip again over November-February, a Yulin trader said it was too early to say as there was a lot of uncertainty.

CNIA sees near-term Chinese magnesium sector's capacity resumption rates to remain uncertain, pending changes in policies related to energy and pollution controls and amid overseas clients waiting for prices to ease before making further purchases.

Top producer at 100% capacity

Despite the underutilized magnesium capacity seen in Yulin, key Chinese magnesium producer Nanjing Yunhai Special Metals has been running at full capacity in the fourth quarter, Yunhai's Board Secretary said. The producer has a total magnesium ingot capacity of 100,000 mt/year.

Power shortages did not impact its production as its production lines use thermal methods of smelting, using just 1,000 kwh power per ton of magnesium ingot output, according to the company.

Yunhai, which produces magnesium at its two plants in the Shanxi and Anhui provinces, is aiming to more than double its ingot capacity to 250,000 mt/year by 2023.