ferrosilicon market outlook in the second half of the year
From the perspective of production cost, in the production cost of ferrosilicon, electricity accounts for 60%-70%, blue carbon accounts for 25%-30%, and silica accounts for 2%. Silica is the raw material of ferrosilicon. Mainly distributed in Shaanxi, Gansu, Ningxia and other northwestern regions. The silica required for ferrosilicon in my country is produced entirely by domestic resources. At present, the largest silica and quartz stone base in China is located in Shizuishan City, Ningxia. The proven silica reserves amount to 4.3 billion tons.
Silica is cheap. Therefore, the proportion of the cost of ferrosilicon is very low. It has minimal impact on ferrosilicon prices. Domestic ferrosilicon production capacity is concentrated in Qinghai, Ningxia, Inner Mongolia, Hunan and Gansu. The output of ferrosilicon in the five provinces accounts for about 75% of the national output. In 2020, the electricity prices in the five provinces are all lower. The electricity price is basically stable at 0.36-0.45 yuan/kWh. In 2021, due to the influence of the "dual control" policy of power curtailment and energy consumption, electricity prices in all provinces will increase significantly. In September 2021, the electricity price in Inner Mongolia will rise to 0.68 yuan/kWh, and the electricity price in Hunan will rise to 0.67 yuan/kWh.
On the whole, for ferroalloys, there will be no large-scale production and power restrictions again in the second half of this year. If there is excess power generation, the possibility of further decline in electricity prices cannot be ruled out.
At present, steel mills are still affected by low profits, high inventory, and low demand, and the reduction in production is relatively large, but it has basically bottomed out. After the fourth round of coke reduction, the profit of steel mills has been restored. There may be some recovery in the future. The periodic replenishment of steel mills will have a certain support for the demand for ferroalloys.
For ferrosilicon, magnesium metal is the second largest demand point. In 2021, magnesium metal will be affected by the "double control" policy of energy consumption, and the production status will be poor. In 2022, the environmental protection policy will become stricter, and the capacity utilization rate of magnesium will be limited. 62% of the domestic magnesium production comes from Shaanxi. However, due to the relatively backward production line of magnesium ingot smelting in Shaanxi, it is expected that the production capacity will be difficult to effectively release under the influence of policies.
Based on the above analysis, the price of ferroalloys this year is still higher than that of 2020. In terms of absolute prices, there is limited room for ferroalloy raw materials and electricity prices to fall. Therefore, it is difficult for the price of ferrosilicon to collapse again. As the global economy is no longer overheated and the geopolitical conflict eases, ferroalloy exports will also gradually decline.
Overall, it is expected that the profits of ferrosilicon manufacturers will remain low in the second half of the year. Ferroalloy prices will remain at the cost line and will not fluctuate significantly.
