The lightest of metals seems anything but at the moment. Prices came off sharply last year and have remained in the doldrums ever since. There appears plenty of metal in the supply chain and buyers are reluctant to commit to any sizable contracts this side of the summer period. Prices in China have drifted lower since the beginning of the year but have been stable for the last month according to the MetalMiner IndX(SM). As producer of some 78% of the world’s magnesium and consumer of about 30%, China is a major player. At 53%, Israel constitutes the largest source of magnesium imports into the US but China is a close second at 43%. Russia was a significant supplier until countervailing duties were applied by the ITA at 43.58% of the metal value according to the USGS.
When we think of magnesium most people immediately think of aerospace applications, medical implants, and cases for high end laptops or mobile phones. Indeed these are high profile applications for magnesium building as they do on the metal’s low weight and high strength. But the largest market for magnesium is as an alloying element in aluminum, usually less than 5% by weight, which accounts for around half of magnesium demand. The largest driver in terms of magnesium demand is therefore the use of aluminum in packaging and transport. Add in magnesium’s growing use in high pressure die castings for the auto industry and it is clear why demand is so depressed. Both aluminum alloys and direct magnesium alloy demand from the transport industry is severely reduced. However if a move to lower weight more fuel efficient vehicles develops as rapidly as expected, magnesium demand could pick up sharply over the next 2-3 years. Even soft drinks sales ” a large consumer of beverage can aluminum alloys ” are flat, no pun intended, with sales a little down in the US and a little up in Europe.
There is no shortage of magnesium sources in the world. Salts are extracted from salt lakes in Israel, the US, China and elsewhere, from seawater and from Dolomite rocks. In fact, as the third most abundant metal in the earth’s crust we are unlikely to ever run out of magnesium. What is more of an issue is where it comes from. As we mentioned above, Israel is a major supplier to the US. Russia and Kazakhstan are major producers for the European market. Following massive investment over the last decade, China now dominates the supply market. Fortunately for competition, production is still split among many small to medium sized producers but the industry is merging and condensing, with the major producers like Ningxia Huaying Mining, Qinghai Salt Lake Industry Group and Fugu Coal & Chemical Group have plans for plants in the range of 50,000 to 150,000 tons per annum. By contrast, total US production is only about 50,000 tons per annum. Some of these plants will be delayed by the current market. But over time, China’s producers are growing larger ” output from plants of more than 10,000 tons per annum have increased from 45% in 2000 to 70% in 2006 according to infoshop.com, and with that will come greater pricing power.
Some mines and refining plants have been idled around the world due to the current low prices so bringing facilities back on line will take time and a sustained higher price but the potential for multiple sources of supply means the US market is not at risk of becoming a hostage to Chinese or Russian producers. The issue is more how high will the price need to go before facilities closer to home become viable again. Prices are not expected to rise above $3000/ton this year or early next so it is too early to be fixing long term contracts but the fall pricing negotiations will give a better indication of how the supply chain inventories are shaking out and what we can expect in 2010.