GEMCO
MIKE COOPER Australia’s GEMCO has a pivotal role to play in the global market, but as steel production in mega-consumer China stalls, the manganese market stands at a crossroads.
THE Groote Eylandt Mining Company (GEMCO) on Australia’s Gulf of Carpentaria has a leading market position on the production cost curve for manganese mining.
The open-cut mining operation is one of the largest and lowest-cost manganese ore producers in the world, according to its operator and 60pc owner South32.
This makes GEMCO an ideal bellwether for assessing the state of the global manganese market.
South32 said in a January production report that it expects its Australian manganese ore production to hit 3.56mwmt in the June 2020-ended financial year.
Heavy rainfall slowed throughput at its Australian ore processing facility in September and production fell to 1.77mwmt for July-December 2019.
This is down 2pc from 1.81mwmt for the corresponding 2018 half year, stated the report.
Total manganese ore production for South32 on an equity share basis was 2.81mt in the July-December 2019 half-year, down 3pc on 2.88mt for the corresponding 2018 half-year.
The company’s South African production of manganese ore was 1.03mwmt in the six months ended December 2019, down 3pc from 1.07mwmt in the corresponding 2018 half year.
Extended maintenance at its Wessels mine in South Africa in late 2019 and South32’s reduced use of high-cost trucking affected its ore production in South Africa.
Ore from GEMCO, in which Anglo American has a 40pc stake, is shipped to South32’s Tasmania alloy plant for processing into ferro-manganese for use in steelmaking.
Manganese alloy production for the company fell 17pc to 91,000t for the December 2019-ended half year, from 109,000t in the July-December 2018 period.
Alloy production at its Australian plant declined in the recent half year following operational issues.
“Manganese alloy saleable production decreased by 25pc to 57,000t in the December 2019 half year as one of the four furnaces was taken offline,” stated South32 in its January report.
Market health
The health of the global manganese market is chiefly determined by the state of the steel industry and that of its largest producer, China, which accounts for 50pc of global steel production.
In steel production, manganese is used as an alloy and deoxidising component.
China’s steel production is forecast at 917mt for the 2020 year, and is set to decline to 902mt in 2021, according to Australia’s Office of the Chief Economist in its Resources and Energy report for the quarter ended December 2019.
South32 chief development officer Simon Collins highlighted the importance of China’s and India’s steel production to the manganese market in his speech to the 2019 Diggers and Dealers conference in Kalgoorlie.
Mr Collins also pointed to the increasing trend for China and India to smelt manganese ore which is impacting the market for manganese alloy.
“Globally, China and India account for approximately 60pc of steel production and have developed significant domestic smelting capacity,” he said.
According to the Office of the Chief Economist in its recent report. world steel production is forecast to decline 0.6pc year on year in 2020 to 1.81bt.
“European Union steel output fell in October ( for the 10th successive month), as well as in Japan and South Korea.
Growth is also softening in India, and appears to have stalled in the US, though this may be just a temporary downturn,” the report stated.
“Manganese alloy saleable production decreased by 25pc to 57,000t in the December 2019 half year as one of the four furnaces was taken offline.”
This market trend towards ore and away from alloy has led South32 to review the future of its existing manganese alloy smelters in Australia and South Africa.
In its January 2020 production update, South32 said its review was ongoing and its options for its manganese alloy smelters in
Australia and South Africa included sale, closure, or mothballing.
“We have also seen significant new capacity in Malaysia – where there is the advantage of access to cheap power coupled with a favourable location – both to receive raw materials, and to ship to end markets,” Mr Collins said in his Kalgoorlie speech.
Aside from making steel, manganese has a variety of other uses including as an additive in petrol, pigments in the ceramics and glass industries.
Dry-cell electric batteries is another growing demand point for manganese in a dioxide form.
Price volatility
Slowing economic growth in China and the rest of the world as highlighted by recent IMF reports could drag on manganese demand and prices.
Manganese prices have traded in a volatile fashion over the past five years, hitting a low of Yuan 16/t in January 2016, and spiking at Yuan 51/t later that year.
Its current price is around Yuan 32/t ($6.80/t) on a 37pc quality basis CIF
Tianjin, China, a major delivery point for the country’s steel mills, according to website Trading Economics.
For its Australian manganese ore, South32 realised a market price of US$4.49/ dmt free-on-board (FOB) basis Australia in the July-December 2019 half year, down 32pc from a realised price of US$6.59/dmt FOB for the July-December 2018 period.
Realised prices for its South African manganese ore fell 35pc to 3.81/dmt FOB Port Elizabeth in the first half of the 2020 financial year, from US$5.85/dmt FOB in the first half of the 2019 financial year.
South32’s Australian manganese ore product has a 45pc manganese content compared with 40pc for its South African ore product.
“Globally, China and India account for approximately 60pc of steel production and have developed significant domestic smelting capacity [for manganese].”