By Michael Montgomery—Exclusive to Manganese Investing News
The price of manganese has been declining lately, down roughly 40 percent year-over-year. Currently the price of manganese ore shipped to China by BHP Billiton is $5.50/dmtu, down from the $18/dmtu price of 2007.
Part of the blame rests on large stockpiles of the metal in China which total approximately 3.73 million tonnes. The other major factor that could result in weak prices going forward is the massive increase of new supply coming from South Africa. There are multiple world class manganese deposits coming online over the next two years in South Africa that will hold prices at bay for the next few years. However, China is struggling economically produce manganese from their low grade deposits, increasing the total imports into the country.
South African supply affecting price
Over the next two years South Africa aims to be a significant source of manganese supplies as several new mines will add an additional 12 million tonnes of capacity onto the market. However, this massive increase of new supply is weighing heavily on the price.
“While I still believe that manganese is a fantastic business, and that it will recover in time, I think that for the next two or three years, we’re in for a rough ride,” stated Johan Kriek, CEO of United Manganese of the Kalahari (UMK).
The new supply will come from several large deposits in South Africa. UMK projects to produce up to 2.7 million tonnes of manganese next year. Add that to Tshipi e Ntle Manganese Mining Ltd. plans to produce and annual output of 2.4 million tonnes, as well as the Kalagadi Mine, owned by Kalahari Resources which has a planned output of over 2.5 million tonnes per annum.
The new supply will more than likely keep prices at bay in the short term. However, steel production in China is projected to continue to grow. BHP Billiton (LSE:BLT) stated that it expects steel production to grow to 1.1 billion tonnes by 2025. Every tonne of crude steel uses approximately 30 kilograms of manganese ore, the growth of steel production will add demand for imported manganese.
Chinese manganese imports
China’s deposits produce low grade manganese ore that is becoming increasingly expensive to process. China’s deposits produce manganese ore with content as low as 14-15 percent. In comparison South Africa’s Kalahari deposits produce grades of roughly 37 percent, with high-grade ore producing up wards of 48 percent.
“It will become uneconomical for the Chinese to use their ore and that will create additional demand, which will be good for the manganese mining industry,” said Johan Kriek.
Chinese domestic supplies of manganese are seemingly running out, or are cost prohibitive to produce. In June, Manganese Investing News reported that Zeng Xianbo the General Secretary of China’s Sodality of Manganese Plant Directors stated, “China may lose 500,000-700,000 tonnes a year of metal capacity in the next 3-5 years if no new resources are found.”
While the new supply coming from South Africa may put pressure on prices over the next two years, the reduced domestic production of manganese in China should offset the difference. It may take time for the price of manganese to make significant gains in the short term, however the upside potential is there.