Magnesium Hits 61/2 Year HighBy Martin Hayes
"LONDON, MARCH 12,(REUTERS) Magnesium hit its highest since October 1997 on Friday, with a lack of metal from China and an exhaustion of trader inventories triggering an advance of some $400 this month.
"Now it is accelerating almost daily. It is very difficult to get hold of the metal from China", one European end user said.
Prices for the metal, largely used by car manufacturers to make parts of their products lighter, are around $2,300/2,500 a tonne, having shot up from the $1,800-a-tonne range level that prevailed for much of 2003.
Traders said power shortages and high raw material costs in China have resulted in many long-term contracts with Western end users being cancelled or renegotiated.
Earlier this month Minhe Magnesium in China's northwest province of Qinghai, which has an annual capacity of 7,000 tonnes, said it expected to produce only 5,000 tonnes this year.
At the Taiyuan Magnesium Plant in Shanxi, power is turned off for two days every month, while Huiye Magnesium in Ningxia is cutting monthly output to 800 tonnes from a capacity of around 1,500 tonnes as its raw materials costs were too high.
"Demand is constant, but the chronic lack of electricity there will not be resolved. Producers have about 30 percent less than they have sold", a trader said.
Shortfalls were initially met by utilising traders' stocks in Rotterdam, but these have been virtually whittled away now, he said.
"A lot of Western buyers are out there at the moment. No one is going to be immune from the renegotiation going on in China now," he added.
Annual magnesium production is around 415,000 tonnes, close to consumption of some 400,000 tonnes. China produced around 320,000 tonnes in 2003 and exported 280,000 tonnes.
LITTLE CHANCE OF INCREASED WESTERN OUTPUT
Despite the high prices, there are few prospects of additional metal coming from Western producers. Many closed down in recent years with prices floundering near multi-year lows of $1,275 hit in 2002, while cash costs are in the $2,200 ($1.00/lb) area.
Earlier this month, Canada's Noranda Inc. said prices needed to be much higher for it to consider restarting its Magnola magnesium plant that was mothballed in January 2003.
"we have to feel fairly comfortable with seeing prices at the $1.30-to $1.40 range", Bob Sippel, president of zinc and magnesium operations, said.
Lightweight magnesium alloys are used in the automotive industry as a means of reducing weight, increasing fuel efficiency and cutting greenhouse gas emissions. However, current price uncertainty and volatility is deterring manufacturers.
"Magnesium is an immature metal compared with other materials, such as steel and plastic", the trader said."