shine trader limited reports:
The impact of the energy crisis continues. China’s power rationing has led to a sharp decline in magnesium production, and now European inventories have been seriously urgent.
“European magnesium stocks are expected to run out by the end of November.” European industry organizations warned that the EU executive committee must start negotiations with China to restart magnesium shipment in order to alleviate the serious shortage and avoid plant closure. “About 95% of EU demand for magnesium is supplied by China, but shipment has dried up since September.”
For Europe, since China meets 95% of Europe’s magnesium demand, Europe is completely dependent on China. More than a dozen European industry organizations, including metal producers, automobile suppliers and packaging industry, said in a joint statement: “if the EU does not take urgent action, if this problem is not solved, it will threaten thousands of enterprises in Europe, their entire supply chain and millions of jobs relying on them.”
It’s the energy crisis again
The plight of magnesium shortage in Europe stems from the energy crisis. Affected by the dual control of energy consumption and local power restriction measures, enterprises in China’s main magnesium producing areas stopped production and reduced production, resulting in a serious shortage of market supply. Magnesium is a real power consumer. According to the data of Bank of America Securities, it takes 35-40 megawatt hours to produce a ton of magnesium and 16 megawatt hours to produce a ton of aluminum.
About 85% of the global magnesium production comes from China, while the magnesium production capacity of Fugu County, Yulin City, Shaanxi Province accounts for 65% of the country. On September 13, Yulin development and Reform Commission of Shaanxi Province issued the notice on ensuring the completion of the dual control target task of energy consumption in 2021. Most magnesium enterprises in the main production area have 50% limited output, involving more than 40 magnesium plants. On September 20, the government of Fugu County, Shaanxi Province issued the letter on the business invitation to stop the power supply to the first batch of energy consumption double control key regulation enterprises in Fugu County, requiring Yulin power supply bureau to stop the production and power supply to the local metal magnesium enterprises in Fugu County from September 20, 2021.
Echoing the reduction in production, magnesium prices have soared in various countries. According to Argus media, an international energy and bulk price evaluation agency, the price of magnesium in Europe has soared by nearly 75% in the past month to more than US $9000 per ton, a record high. China’s magnesium prices are also soaring, more than doubling in the past year to $4700 a tonne, the highest level since 2008.
“Magnesium shortage is a huge problem we are facing at present,” said Tim stappen, spokesman of the German Aluminum Association. “The magnesium inventory of German companies will only last until the end of November.”
The auto industry has been hit again
Due to the pressure of emission reduction and energy shortage, China’s magnesium smelters have generally reduced production, which has pushed the magnesium price to the highest point since 2008. At the same time, it has brought a big trouble to the automobile industry, which has been plagued by core shortage.
Magnesium is the key raw material for the production of aluminum alloy, which is widely used in automobile gearbox, steering column, seat frame and fuel tank cap. Each internal combustion engine vehicle needs 150 to 200 kg of aluminum alloy, and the electric vehicle can reach up to 600 kg.
In an interview with the 21st Century Business Herald reporter, Zhang Xiang, an analyst in the automotive industry, said that the lack of magnesium has greatly affected the production capacity of aluminum alloy, which is an important material in automobiles and has a wide range of applications. After the car design is finalized, it is generally difficult to change. If there is a lack of materials, the production line can only stop.
This also means that if magnesium production fails to recover, the global automobile industry will face the risk of large-scale shutdown again.
“There is no substitute for magnesium in the production of aluminum plates and billets,” said Amos Fletcher, an analyst at Barclays. “35% of the demand for magnesium in the downstream of the industry is used to manufacture automobile plates. If the supply of magnesium is stopped, the operation of the whole automobile industry may be interrupted.”
Bank of America Securities also said in a report: “the shortage of magnesium may lead to the shortage of aluminum, which may affect automobile production… We emphasize that this situation has not been included in our expectations. This problem has just appeared, and no automobile manufacturer has issued a warning.”
The shock wave will continue
It should be noted that the lack of magnesium will have an impact on many industries, affecting a wide range. Due to the lack of magnesium supply, the global automobile industry and aviation industry may face a shortage of parts next year. At the same time, medical products also urgently need aluminum alloy, such as ventilator. Magnesium is also widely used in aircraft, construction and packaging industries, as well as mechanical engineering and steel production.
“The reduction of magnesium production capacity and price increase are almost unprecedented. Our industry has not experienced such rapid market changes since the 2008 Beijing Olympic Games,” said Rick mcquery, President of the International Magnesium Industry Association.
For the dilemma of magnesium shortage, eurometaux, the European metal industry association, said that in the longer term, Europe should consider whether it can restart local magnesium production. At the beginning of the 21st century, due to the low price of magnesium in China, the magnesium industry in Europe was basically closed.