We wrote recently about the impact power rationing and rising coal costs were having on metals producers in Europe.
Well, it would seem that is not the only driver pushing semi-finished product prices higher this month.
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Aluminum prices, alloying element shortages
The LME aluminum price been rising relentlessly. Furthermore, the availability of alloying elements is becoming so acute, both in terms of price and deliveries, that producers are sending out notes to clients advising that global shortages of raw materials like magnesium — critical in alloying higher grades of aluminum — could result in production stoppages and sharply higher prices later this quarter.
The problem, as is so often the case in the metals markets, is that China is the world’s largest source of alloying magnesium. That is in addition to a host of other similar metals, like manganese.
However, power rationing has impacted production there. European mills have no idea when this shortage will ease. They clearly feel the implications, both in terms of further price rises and delivery delays, which are so acute that they need to warn the market to set expectations.
Challenges in China’s metals sector
Nor are the producers of alloying elements the only part of the Chinese metal production landscape hit by power problems.
Some rolling mills recently announced a temporary exit from quoting for new business after more mills have been forced onto part-time working. Mills responding to MetalMiner requests for information have confirmed they are now on a three-day week with the balance four days only operating off peak in the evenings or overnight.
As a result, mills do not yet know what the impact will be on deliveries. Hence, they cannot offer against new business until their revised production schedules settle down, likely towards the latter part of the month.
Coal supply in China and, therefore, electricity production is unlikely to resolved much before the year’s end.
Metals consumers can expect a rocky road ahead. There will likely be further cost increases and potentially further material delays on top of already extended delivery schedules at many mills.
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