Manganese ore prices are poised to increase further as the market continues to digest the yearlong closure of the world's second-largest manganese mine and as China's stocks of high-grade Australian ore start to decline.

The global manganese market lost 12% of supply when a tropical cyclone halted production at Australia's Groote Eylandt Mining Co. Pty. Ltd. (Gemco) in mid-March. Operator South32 Ltd., which owns the mine with Anglo American, expects repairs at the mine and export wharf to take until the first quarter of 2025.

Manganese ore is used to produce silicon manganese, which is used in steel production to eliminate oxygen and sulfur and strengthen the alloy. High-purity manganese is poised to become an important ingredient in batteries for electric vehicles.

The abrupt supply disruption and long estimate for repairs boosted manganese ore prices, and analysts predicted the oversupplied market would shift to deficit until Gemco restarts. The price for 32% manganese ore delivered to Tianjin, China, was assessed at $5.36 per dry metric ton unit (dmtu) on May 10, up 28% month over month and 32% higher than the year-to-date low of $4.06/dmtu on Jan. 18, according to S&P Global Market Intelligence data.

"There is a structural deficit in high-grade ore which is already happening now, and being reflected in the Chinese port offering prices," Tony Gu, head of research at Australia-based investment manager Datt Capital, told S&P Global Commodity Insights. Gu noted Gemco's final shipment to China arrived in late April.

Reliance on Australia supply

Manganese stocks at Chinese ports fell 10% in April, said Jupiter Mines Ltd., owner of Tshipi Borwa in South Africa, the world's fifth-largest mine according to Market Intelligence data. Australian stocks at Chinese ports also fell 10% month over month as of April 26, according to data from Gu.

"If there's a 50% drawdown in high-grade inventory at the port ... it could lead to a one-month decrease in port inventory, bringing it perilously close to breaching the safety inventory level," Gu said in a May 3 note.

Before the Gemco outage, China had increased its reliance on Australian manganese.

China's manganese imports from Down Under rose 24.7% to 5.25 million metric tons in 2023, whereas imports from top supplier South Africa were flat during the same period, according to Market Intelligence's Global Trade Analytics Suite.

Manganese miners in China are running at about 70% of capacity, Aloys d'Harambure, executive director of the France-based International Manganese Institute, told Commodity Insights. "Increasing this ratio significantly is a challenge due to safety concerns at some mines."

Chinese domestic supply is also mostly low-grade carbonate material primarily used by producers of electrolytic manganese metal used in stainless steel, d'Harambure said. Little goes to manganese alloy producers that need higher-grade ore, especially in areas with high power prices, d'Harambure said.

Longer shipping times

Major miners in Gabon and South Africa face their own challenges to replacing supply from Gemco, including rail constraints, much longer shipping times and higher shipping rates as a result. Ore shipped from Africa takes about 30-45 days to reach Chinese ports, compared with about 15-18 days from Australia, according to Gu.

China's crude steel production averaged roughly 84 million tons per month in the 12 months to April, indicating stable manganese demand from steelmakers, according to Gu. Steelmakers will not likely be affected by a spike in manganese ore prices as steel only contains 1% silicon manganese — doubling the ore price would result in a mere 1% movement in the price of steel, Gu said.

But not every analyst expects manganese prices to rally.

Tanisha Schultz, research analyst at critical minerals consultancy Project Blue, questioned the "sustainability of prices going too much higher" given excess capacity among domestic miners, a surplus before the Gemco outage, current port stocks to cover about three to four months, and uncertain Chinese demand.

"Additionally, anti-dumping duties on Chinese steel may further reduce demand," Schultz told Commodity Insights.