Processed magnesium blocks ©Getty Images
Processed magnesium blocks ©Getty Images

What to do about the magnesium shortage

17 February 2022

A squeeze on metal production could upend major industries

When China cut magnesium production in late 2021 due to a lack of fuel, the ripples were far-reaching. Magnesium is essential for manufacturing steel and aluminium, so the sudden drop in availability was sure to hit businesses, especially those in the automotive, packaging and construction industries.

The metal’s price fell by 40% at the end of 2021, dropping to $5,800 per tonne in November, yet this figure was still almost triple that of last January’s. With production still below the norm, when can we expect the price and availability of global magnesium to recover? 

“The price surge has highlighted country risk,” the Japan Magnesium Association says, adding that Japan must urgently diversify its suppliers.

“Given that China is aiming to decarbonise, it is likely that this industry will continue to be exposed to [further energy] restrictions,” says Takafumi Kamishima, senior managing director at Tak Trading, a Tokyo-based magnesium trader. “In that case, it is unlikely that prices will go back to the low level at $2,000–$3,000 per tonne.”

And Japan is certainly not alone. European Aluminium has listed magnesium as a critical raw material since 2011, and there have been several calls for action on supply risk.

Its recent position paper states: “The current magnesium supply shortage is a clear example of the risk the EU is taking by making its domestic economy dependent on Chinese imports. The EU’s industrial metals strategy must be strengthened – aluminium cannot become the next industry leakage case.”

China has long dominated the magnesium market, producing around 85% of global supplies, but now more attention is being paid to buyers’ red flags. A representative of Tokyo-based metal trading company Hanwa Co. told Nikkei Asia: “Customers are now aware of China’s risk more than ever and we are facing increasing demand from them to purchase more magnesium from other countries”.

As Hanwa soon found out, turning to other, smaller suppliers, including the US and Russia, meant being prepared to pay more, along with a queue of manufacturers with the same idea.

Mitigating multiple risks 

Supplies of magnesium in 2022 will hinge on coal prices, as China relies heavily on the feedstock, says Nicholas Andrews, CEO of magnesium producer Magontec, told Nikkei Asia. “The pidgeon process requires energy from coal [mostly coke offgas]. There are very few Chinese pidgeon plants that use alternative sources,” Andrews said.

A post-pandemic boost for manufacturers caused an unparalleled energy drain last year so, when gas was depleted, factories turned to coal and its prices surged. Industrial consumption exhausted China’s domestic supply and the government was forced to intervene.

With coal scarce, magnesium rose to $10,000 a tonne until Beijing decided to ramp up mining to curb the trend.

“When coal prices surged to CNY2,200 per metric tonne (Mt) in 2021 and China mandated energy usage limits, magnesium prices raced past CNY50,000 per Mt, although the true cost of production at that stage was probably around CNY35,000 per Mt,” Andrews said.

So who pays for rising material costs?

Although magnesium makes up a very small portion of the alloys in which it is used, “the impact that these materials cause is rapidly expanding”, says Takahiro Mori, representative director and executive vice-president of Nippon Steel.

“We cannot absorb the costs on our own. We have to talk with our customers about how much we can pass on raw material costs to them and ask them to bear the burden throughout the supply chain.”

While it’s relatively easy to manage and balance out major commodities, this isn’t the case for small-scale metals, such as magnesium, which are generally by-products of other mining operations.

Miyuki Ishihara, president of UACJ, one of the world’s largest aluminium product makers, believes future stability and supply security of magnesium relies on changing how it is managed. Now is the time, he says, to think about “a mechanism and system to pass on costs to customers when the prices rise sharply”.

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