1. What is ferrosilicon?

Ferrosilicon is an alloy primarily composed of manganese, silicon, iron, along with trace amounts of carbon and other elements. It is a widely used and high-volume ferrous alloy.

The strong affinity of manganese and silicon for oxygen makes ferrosilicon a crucial deoxidizer in steelmaking. The by-products of deoxidation, MnSiO3 and Mn2Si4, have melting points of 1270℃ and 1327℃ respectively, providing benefits such as low melting points, large particle sizes, ease of floating, and effective deoxidation. Hence, ferrosilicon is a significant consumable in steel production, ranking second in consumption among electric furnace ferrous alloys.

In simple terms, ferrosilicon is an indispensable deoxidizer in the steel industry, which accounts for over 90% of its total consumption. It is closely related to sectors like real estate and infrastructure, forming a part of the black industrial chain.

Furthermore, given the continuous production nature of the steel industry and the relatively low cost proportion of ferrosilicon in overall expenses, this alloy exhibits a certain rigidity in its consumption.

On the supply side, manganese ore is the primary raw material for smelting ferrosilicon. The chemical composition and physical properties of manganese ore significantly dictate the economic and technical indicators of the entire smelting process. The supply situation of manganese ore usually determines the availability of ferrosilicon.

Interestingly, China exhibits a rather unique mineral scenario; while it possesses a wide array of minerals, the quality often falls short. China's manganese ore reserves rank second globally, predominantly found in the Guangxi and Hunan provinces, but the quality is lacking. Furthermore, due to extensive mining, China's manganese ore resources face the danger of depletion, necessitating measures for resource conservation and protection.

Consequently, China is heavily reliant on manganese ore imports. Data from 2023 indicates that China imported 31.42 million tons of manganese ore, while domestic production was only 7 million tons, indicating an import dependency exceeding 90%.

Globally, the distribution of manganese ore is concentrated in countries such as South Africa, Australia, Brazil, Gabon, China, and India. Notably, South Africa holds the largest share of around 43%, predominantly in the Kalahari Basin, which houses about 80% of the world’s known manganese resources.

This supply concentration poses a significant risk, as supply disruptions can lead to marked price volatility. Coupled with the inherent rigidity in demand, ferrosilicon often behaves like a highly speculative commodity favored by traders.

In the first half of 2024, ferrosilicon prices surged substantially due to an announcement from South32 in late March regarding large-scale flooding caused by Tropical Cyclone Megan, which led to significant damage at ports and terminals, halting operations at their GEMCO site in Australia. Approximately 70% to 80% of GEMCO's output is shipped to China, causing a massive impact on Chinese manganese ore imports and resulting in a rapid price increase.

The pertinent question now is, what lies ahead?

2. Is there a resurgence of ferrosilicon prices?

What are the current fundamentals of ferrosilicon?

Given the market's pessimistic outlook for the steel industry and the substantial losses within the sector, ferrosilicon profits are constrained, leading to relatively low manganese ore inventories in the industry. Although there has been a notable increase since April 2023, overall inventory levels remain low. According to data from Mysteel, the inventory days of ferrosilicon at sample steel mills in December were recorded at 15.85 days, increasing by 6.73% compared to November. In terms of company inventories, the total stockpile from 63 independent ferrosilicon firms nationwide was around 200,000 tons, a decrease of 2,500 tons week-on-week.

Under these circumstances, any contraction in supply or demand recovery could trigger an explosive surge in prices.

Recently, there has been a slight improvement in the overall expectations for the black metal sector and a corresponding uptick in macroeconomic indicators.

Additionally, in January, Gabon shipped 1,430 tons of oxide ore to ports, reflecting a significant reduction compared to the previous year. It is anticipated that the shipment of Gabonese oxide ore to China in February may decrease by half or even more, given that current manganese ore stocks are at historic lows. The port's supply from Gabon is highly consolidated, prompting traders to increase their local pricing in anticipation of insufficient manganese ore availability.

3. Should you jump in?

Personally, I am not optimistic about this round of ferrosilicon pricing; the sustainability of this rally seems weak.

First, regarding demand, 2025 is projected to be even more challenging. While some real estate and infrastructure projects continue to support it, new starts have been declining by over 20% in 2023 and 2024, leaving little room for optimism regarding new projects.

With fixed asset investments exceeding 40%, these figures are still significantly above normal levels. Even if stimulus measures are applied, they will primarily target consumption rather than large-scale infrastructure or real estate investments, so it's unwise to harbor unrealistic expectations.

As for the supply side, the situation remains uncertain. Although there has been a decline in import volumes, there are no current indications of irreversible supply reductions. Seasonal factors could also contribute significantly, as observed in previous years.

Based on the current fundamentals, it seems likely that we may experience a volatile rebound. It is prudent to be cautious about chasing after increases.

Despite the harsh market conditions, statistics reveal that the average lifespan of futures traders is under two years, with at least 80% of newcomers disappearing during the follow-the-crowd phase. However, I genuinely hope that my followers can survive in this market and mature together.

In conclusion, I would like to remind everyone again that accurately predicting market trends alone won't guarantee profit. Risk management is the key to winning. Do not depend too heavily on my analysis; I am not infallible and will undoubtedly make mistakes. Regardless of how hard I strive, mistakes are inevitable. You too cannot avoid errors; however, strategizing when possible can help mitigate risks.

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