In recent years, magnesium alloy has been widely used in automobile, electronics and other fields due to its excellent performance, and some breakthroughs have been made in technological innovation. However, some in the magnesium industry say the sharp fluctuations in magnesium prices are not conducive to applications in areas such as automobiles. Since September 2021, the price of magnesium has risen sharply, slowing down the progress of some automotive magnesium alloy parts, magnesium alloy templates and other projects under development or start-up.

  Rising magnesium prices are both common and characteristic

  In mid to late September 2021, Yulin City of Shaanxi Province took measures to stop production and limit production in order to achieve the goal of "dual control" of energy consumption, resulting in a sharp rise in magnesium price and tight supply. Data show that at the beginning of 2021, the price of magnesium ingot was 15250 yuan/ton, and at the end of 2021, the price of magnesium ingot rose to 49,000 yuan/ton, and the highest price was 70,000 yuan/ton.

  In 2021, the average price of magnesium is 25,943 yuan/ton, with a year-on-year increase of 93.9%, reaching the highest level in history. In the first quarter of 2022, the price of magnesium ingot fluctuated above 40,000 yuan/ton. After April 2022, the price of magnesium gradually declined. At the end of May 2022, the price of magnesium dropped below 30,000 yuan/ton.

  With the proposed goals of "double control" and "double carbon" energy consumption, China has upgraded environmental protection measures and strengthened supervision. At the same time, affected by the COVID-19 epidemic and other factors abroad, international shipping is strained, transportation costs increase and raw material prices generally rise.

  In 2021, the average spot prices of copper, aluminum, lead and zinc rose by 40.5%, 33.5%, 3.4% and 22.1%, respectively. The average spot price of electrolytic nickel and electrolytic cobalt increased by 25.6% and 40.1%, respectively. The average spot price of lithium carbonate and lithium hydroxide rose by 177% and 117%, respectively. The average price of metallurgical grade industrial silicon and chemical grade industrial silicon increased by 108% and 123%, respectively. The lowest annual price of ferrosilicon is 6300 yuan/ton; In late September 2021, the highest price of magnesium rose to more than 18,000 yuan/ton.

  However, the rise in magnesium prices has its peculiarities.

  The scale of magnesium smelting and processing industry is not large, but the production of magnesium is greatly restricted by external conditions. Most magnesium smelting enterprises and related enterprises are small and medium-sized enterprises, which lack the ability to control resources and industrial chain. Companies not only have to deal with various challenges and difficulties, such as rising raw material prices, increasing transportation costs, and repeated COVID-19 outbreaks, but also the implementation of relevant policies in the magnesium industry and industrial development have many uncertainties.

  The production cost and operation of magnesium plants are subject to various kinds of market intervention, rather than individual enterprises and industries alone. At present, there is a high concentration of magnesium smelting capacity at home and abroad. 87% of the global output is in China. About 65% of China's output is in Yulin, Shaanxi Province, and Fugu County of Yulin accounts for about half of the national output.

  Supply and demand and fundamentals

  Is the dominant factor of magnesium price shock

  In 2021, the domestic production of magnesium ingot was about 930,000 tons, a slight increase from 2020. However, the sudden production restriction and production suspension measures of enterprises and the supply shortage of other raw materials make the downstream industrial chain difficult to cope with, especially foreign users and traders have increased the inventory with different efforts to cope with the risk. In 2021, magnesium exports were 478,000 tons, up 21.3 percent year on year, according to customs data. China's magnesium exports account for more than 50 per cent of production. In the domestic magnesium consumption composition, about 2/3 raw magnesium is used in aluminum alloy, titanium sponge, steel and other metallurgical fields, and the raw magnesium used in the production of magnesium alloy accounts for less than 1/3. Therefore, export and domestic consumption in related industries constitute the main application areas of magnesium. Due to the rigid demand, the purchase volume of these two fields is not decreasing but increasing, and the price affordability is stronger than that of magnesium alloy users.

  Despite the high price of magnesium, the actual consumption decline in the domestic magnesium alloy sector is limited. As can be seen from the annual performance announcements of several listed domestic magnesium alloy and die casting companies, the production and sales volume of magnesium alloy and die casting have increased, but the profitability has decreased. Due to the strong voice of end users, downward transmission price is difficult, magnesium companies bear the most pressure brought by this round of price increases.

  As a raw material commodity, a product is sold in response to the market, and when someone offers a higher price (although the buyer is reluctant), the seller generally will not lower the price in order to "stabilize the market" and "expand the application." Similarly, few customers are willing to buy above market prices when the market price is falling or even below cost out of a desire for "win-win" outcomes. Currently, magnesium producers and market stocks are also gradually increasing, which is the main reason for the gradual decline in magnesium prices since May 2022.

  Magnesium price shock is still in a reasonable range

  Looking back at the development of the magnesium market in the past 30 years, there have been many dramatic price increases. In 2008, the sharp rise in magnesium prices coincided with an investment boom, a broad rise in energy and raw materials, but was not as dramatic as this time. From 2009 to 2020, the magnesium market basically maintained a balance between supply and demand, with slightly excess production and relative excess smelting capacity most of the time. The price of magnesium fluctuates in a narrow range above and below the cost line. Most of the price increases in a short period of time are caused by unexpected circumstances, and the price increases last much longer than the low magnesium price. The magnesium industry is constantly reshuffling, many magnesium factories and processing plants are "out". The existing magnesium plants still have many historical debts in environmental protection, energy saving, carbon reduction, safety, cleaner production, automation, and employee welfare, which need continuous investment from enterprises to make up for and increase investment from enterprises to meet the actual requirements.

  Data show that in the past 10 years, the price of magnesium at home and abroad has basically resonance with the price of other major non-ferrous metal varieties, especially the price trend of ferrosilicon is roughly the same.

  According to statistics, since 2009, the ratio of magnesium to aluminum fluctuates between 0.9 and 1.2. In 2020, the price of magnesium will be lower than the price of aluminum. From 2009 to 2020, the price ratio of magnesium to aluminum basically did not exceed the industry's previously recognized reasonable range, that is, within 1.3. From the user side, the lower the Mg/Al price ratio, the more beneficial to promote the application. In recent years, some new energy vehicle enterprises have gained innovative vitality and are implementing and planning more magnesium alloy component schemes. However, in the face of the sudden surge in magnesium prices, the downstream magnesium industry did suffer again. Some magnesium alloy development projects, including cars, bicycles, and construction formwork, have stalled.

  Maintain firm confidence in the development of magnesium industry

  After experiencing the large fluctuations in the price of magnesium, all parties have a more profound understanding of the importance of magnesium. Relevant departments also attach great importance to ensuring the basic stability of magnesium production is an important aspect to ensure the stability of supply chain.

  At present, the supply situation of magnesium industry is undergoing positive changes, and the process transformation and environmental protection upgrading of magnesium smelting enterprises are under way, which will be implemented in a step-by-step and steady way. There is little possibility of sudden and large-scale production reduction and production restriction in the industry. The reformed magnesium enterprise will be more in line with the long-term requirements of high-quality development and continue to become the main force in the magnesium market. At the same time, a number of major new magnesium smelting projects, including Anhui Baowu Light Alloy Co., LTD., are under construction. Large enterprises such as China Baowu Iron and Steel Group Co., LTD., Citic Group Co., LTD., Chinalco Group Co., Ltd. have already laid out their positions in the magnesium industry. Large enterprises with multiple advantages and strengths will become the "leader" of industrial integration and the "stabilizer" of the market. At the same time, a number of magnesium plants in Shanxi, Inner Mongolia, Xinjiang, Heilongjiang and other regions have been restarted or started construction. Electrolytic magnesium production line of Qinghai Salt Lake Magnesium Industry is expected to resume production this year. Most sponge titanium enterprises have started supporting electrolytic magnesium production line, opening up the whole process.

  Abroad, on the one hand, due to multiple considerations such as industrial chain and supply chain security, the United States, Australia, Canada, the European Union and other countries and regions are deploying new magnesium smelters to gradually reduce their dependence on Chinese magnesium. On the positive side, it can reduce the export of high energy consumption, resources and low value-added products, alleviate the domestic supply and demand situation, in line with the national strategy of energy conservation and emission reduction. On the other hand, the operation of the above projects abroad is also conducive to maintaining the overall stability of the global magnesium market, attracting investment and innovation input, promoting the global innovation and wider application of magnesium materials, and promoting the development of the domestic industrial chain. However, according to historical experience, foreign magnesium projects have been pushed forward slowly, and there are still many difficulties in achieving large-scale production, which is expected to take several years. This also leaves a window for innovation and upgrading of China's magnesium industry chain. Enterprises need to make full use of this important window to speed up chain reinforcement, chain consolidation, chain strengthening, chain expansion, focusing on quality improvement, while appropriately controlling the growth of quantity.

  As of mid-June 2022, the ratio of domestic magnesium to aluminum has returned to around 1.25, and the difficulties and contradictions in the magnesium market are gradually easing. With the advancement of related magnesium smelting and magnesium alloy processing projects, the magnesium industry will be well prepared for the mass application of magnesium and magnesium alloys in the next three years. Relevant parties of the magnesium industry chain should understand this situation and predict the future medium and long-term situation. The advantage of magnesium materials will continue to be maintained, and we should keep firm confidence in the development and application prospects of magnesium industry and magnesium materials.

  According to the report "Carbon Footprint of Magnesium Production and Life Cycle Assessment of Magnesium Component Applications in Vehicles" released by the International Magnesium Association, the full life cycle assessment takes into account the production, use and recycling of raw materials. Replacing aluminum parts with magnesium auto parts would have a better greenhouse gas reduction effect than aluminum parts, regardless of the current process used to produce magnesium. Expanding the application of magnesium alloy will be an important optimization solution for lightweight in the era of automobile electrification and low-carbon development. At present, under the condition that China has absolute advantages in magnesium supply, it is expected that the automobile industry can further enhance the importance of magnesium material, take the application of magnesium alloy as an important starting point of material innovation in the automobile industry and an important breakthrough to enhance international competitiveness, resume and promote the implementation of related automobile magnesium alloy projects, and make contributions to the realization of energy saving and emission reduction and "double carbon" goals.

  Responsible Editor: Yang Yiming

  The article comes from the Internet.