In the first half of 2022, under the background of anticipating that China's economy will face the triple pressure of demand contraction, supply shock, and expected weakening, the CPC Central Committee will actively carry out economic stabilization work, promote all regions and departments to actively introduce policies conducive to economic stability, and advocate that policies should be appropriately advanced. The central government's determination to stabilize the economy is remarkable, the market's expectations for infrastructure investment have increased, superimposed on the intensive introduction of real estate-related relaxation policies in various regions, the market in the first quarter is expected to strengthen in a weak reality, and the black system has rebounded in an all-round way, out of a wave of more than 30% unilateral rise. However, the reality of helplessness is weak, the bullish sentiment dominated by expectations gradually fades in the real demand and the continuous recurrence of the epidemic, and the black system including ferroalloys peaked in mid-to-late April after more than three months of unilateral rise, and launched a one-month unilateral downward correction, and the market pulled the price back to the beginning of the year.  

Looking back at the market of ferroalloys in the first half of the year, manganese silicon (7874, -34.00, -0.43%), ferrosilicon (8412, -104.00, -1.22%) as a whole followed the alternating market of the black system out of the strong expectation of pulling up and the weak reality falling. Ferrosilicon in the first half of the year due to the strong demand for non-steel ends, showing a tight supply pattern. Manganese silicon is due to real estate drag down the downstream long product end production, the overall supply and demand is loose pattern. The difference in fundamental strength leads to the price elasticity of ferrosilicon being significantly greater than that of manganese silicon, and the pull-up and fall are more significant.  

Looking forward to the second half of the year, the demand side of ferroalloys: 1) Comprehensively considering the carbon peak background and policy continuity, it is believed that the probability of crude steel maintaining at least the total amount of flat control this year is large; 2) It is difficult for the output of steel reinforcement to rebound significantly in the case that it is difficult to fundamentally change in the downstream real estate industry; 3) Magnesium metal is expected to decline in output under the expected decline in demand for downstream automobile manufacturing and 3C digital accessories industry, and the decline in magnesium metal prices and gross profit; 4) The shift of overseas ferrosilicon demand to China caused by the Russian-Ukrainian conflict is expected to remain strong as the Russian-Ukrainian conflict continues.  

Ferroalloy supply side, manganese silicon due to the weak supply and demand pattern, in the second half of the year demand fell month-on-month background, it is expected that the low profit situation will continue, the supply side will appear to be fixed production, production lags behind the demand decline. In terms of ferrosilicon, high profits have driven output to remain at a high level, and it is expected that the second half of the year will be slowly reduced as the profits caused by weakening demand narrowed. In addition, the implementation plan of Inner Mongolia and Ningxia on the elimination and replacement of backward production capacity in 2022 is expected to trigger a rapid contraction in short-term supply at a time point near November at the end of the year.  

We comprehensively judge that in the second half of the year, ferroalloys will show a loose supply in July and September, and the supply in mid-to-late October and November is tight, and there may be a phased supply-demand mismatch caused by capacity replacement.  

We expect ferroalloys to come out of the second half of the year to first oscillate lower, and then bottom out with the help of supply and demand mismatch. It is expected that the operating range of manganese silicon in the second half of the year will be 7000-9100, and the operating range of ferrosilicon will be 6600-10000. The trigger node of the market is expected to occur in the phase of the introduction and landing of the crude steel production limit policy in July and August, and the phase of rapid decline in supply caused by the elimination of backward production capacity and capacity replacement in mid-to-late October. Pay attention to the short selling opportunity of ferroalloys in July and the rally in October to do long market. A higher profit ferrosilicon may be a better symbol target at the sell-off stage.  

Ferroalloy market review in the first half of 2022  

At the end of 2021, the CENTRAL Committee of the Communist Party of China held a central economic work conference, which clearly pointed out that China's economic development in the coming period will face the triple pressure of demand contraction, supply shock and weak expectations. The meeting demanded that next year's economic work should be steady and steady, and that all localities and departments should shoulder the responsibility of stabilizing the macroeconomy, and all quarters should actively introduce policies conducive to economic stability, and that policy efforts should be appropriately advanced. The central government's determination to stabilize the economy is remarkable, infrastructure investment is expected to become the main grasp of economic growth in 2022, superimposed on the intensive introduction of real estate-related relaxation policies in various regions, the market in the first quarter is expected to strengthen in a weak reality, and the black system has rebounded in an all-round way. The sharp rebound of bifocal has driven the cost end of ferroalloys to rise continuously. In addition, the Russian-Ukrainian conflict led to the transfer of overseas ferroalloy demand to China, China's ferroalloy export growth rate is obvious, non-steel demand performance is strong, hedging the high supply of ferroalloys.  

The black sector came out of the unilateral upward trend in January-April. During the period, the black chain index increased by 31.28%, the manganese silicon index increased by 13.25%, and the ferrosilicon index increased by 36.64%;  

Entering the middle and late April, strong expectations could not be fulfilled, and the market began to gradually dominate by reality. The weak demand of the black system, especially the mature materials, superimposed on the continuation of the epidemic in Shanghai, the spread of the epidemic further hit the market sentiment, the bullish sentiment dominated by expectations in the market faded, and the black system quickly fell back to the rising position at the beginning of the year.  

The black plate entered a downward channel for nearly a month after seeing a high point in mid-to-late April, during which the black chain index fell by 17.41%, the manganese silicon index fell by 11.08%, and the ferrosilicon index fell by 22.79%.  

As of June 10, 2022, the black chain index closed at 197.54, a cumulative increase of 16.34% year-to-date; The manganese silicon index closed at 8630, a cumulative increase of 5.33%; The ferrosilicon index closed at 9764, a cumulative increase of 15.01%.  

Analysis of upstream and downstream of ferroalloy industry chain 

Electricity supply and demand: It is expected that the overall balance of electricity supply and demand throughout the year, and the story of large-scale power curtailment will be difficult to stage  

In its "Analysis and Forecast Report on the National Electricity Supply and Demand Situation in the First Quarter of 2022" released by the China Electricity Federation, it predicts that the electricity consumption of the whole society will increase by 5%-6% year-on-year in 2022. It is expected that the overall balance of electricity supply and demand in the country in 2022 will be tight in some areas during the peak summer and peak winter. During the peak summer period, the overall balance of electricity supply and demand in the country, and the power supply and demand during peak electricity consumption periods are tight. Among them, the power supply and demand in the northeast and northwest regions are basically balanced; Electricity supply and demand in southern, eastern, central and northern China are tight during peak electricity consumption hours; During the peak winter period, the overall balance of electricity supply and demand in the country, and the power supply and demand during peak electricity consumption periods are tight. Among them, the power supply and demand in North China and Northeast China are basically balanced; Electricity supply and demand in the southern, eastern, central and northwestern regions are tight during peak electricity consumption hours。  

The national electricity supply and demand is in an overall balance, which means that in the second half of 2021, the situation of large-scale power curtailment in many parts of the country will not occur in the second half of 2022.  

In addition, the overall power balance means that the main ferroalloy plants in Ningxia, Inner Mongolia, Shaanxi and other ferroalloy plants, which are the main power output areas of the "West-to-East Power Transmission", will ease the power tension. It is expected that the production restriction and suspension means for the production capacity of non-restricted and non-eliminated ferroalloys in the main plant area will be significantly reduced, and the script of production limitation and suspension caused by power curtailment in the second half of 2022 will be difficult to stage.  

Electricity prices: Ferroalloy power prices have risen centrally, and high electricity prices have become the norm 

In order to alleviate the contradiction between coal and electricity, which is one of the factors leading to power curtailment, and to further promote the reform of electricity price marketization, the National Development and Reform Commission issued the Notice on Further Deepening the Marketization Reform of The Feed-in Tariff of Coal-fired Power Generation in October 2021, which involves the abolition of the sales price of electricity in the industrial and commercial catalogue, the comprehensive implementation of the electricity trading market by industrial and commercial users, the liberalization of all coal-fired power generation electricity feed-in tariffs, and the expansion of the floating range of coal-fired electricity prices, of which "the market transaction price of high-energy-consuming enterprises is not subject to a 20% increase limit".  

In December 2021, most provinces and cities across the country implemented the requirements of the National Development and Reform Commission, promoted the reform of the electricity pricing mechanism, and introduced relevant differential electricity price policies for different industries, especially high-energy enterprises. In the context of dual control of energy consumption, it is expected that the electricity price of industrial electricity will be difficult to decline in 2022, or maintained between 0.4-0.6 yuan / kWh.  

Manganese ore: Prices are expected to fall slightly in the second half of the year, but they are still at a high level 

From January to April 2022, China imported a total of 9.5 million tons of manganese ore, down 9.2% year-on-year. The year-on-year decrease in import volume and the year-on-year increase in downstream manganese silicon production, manganese ore port inventories have dropped significantly to near the median level of inventories. Manganese ore rose significantly from the beginning of the year due to a decrease in shipments, a decline in inventories, an increase in downstream demand, an increase in sea freight rates and a depreciation of the renminbi against the US dollar.  

Several factors supporting the price of manganese ore: 1) From the perspective of transportation conditions in 2022, the probability of a significant decline in sea freight rates is low; 2) Sino-US policy split, the United States tightened China's easing, it is expected that the renminbi will continue to depreciate against the US dollar; 3) With the expected decline in downstream demand for manganese silicon in the second half of the year, and the continuous loss of production, it is expected that the decline in manganese silicon production will drive the demand for manganese ore to fall. The above three factors are relatively certain, from the direction of influence, two positive and one negative, manganese ore prices in the second half of the year have a pullback, but it is expected that the decline is limited and will still be at a high level.  

Crude steel: The cumulative output in the first half of the year has reached a high level, and the output in the second half of the year will fall significantly  

In the first half of 2022, under the influence of multiple factors such as the repeated impact of the national epidemic, the steel market, especially the low prosperity of the downstream real estate industry, the generally poor market expectations for the future economy, and the crude steel production restriction policy in the second half of 2021, the crude steel production at the beginning of the year decreased significantly year-on-year. However, with the continuous release of the country's determination to stabilize the economy and related policies, the market's expectations for the future market have gradually recovered. With the successive intensive introduction of real estate relaxation policies in various places and the policy intentions of the central government to encourage infrastructure investment to come forward, steel prices have ushered in a sharp rebound of more than 20% driven by a series of demand stimulus expectations that can be brought about by the expected stabilization of the economy. Since the beginning of the year, the impact of the epidemic in various places has been repeated, and the situation has gradually eased in March and April. Crude steel production continued to rise in March after the lows of the beginning of the year and is now second only to the 21-year high.  

As of the end of May, the cumulative crude steel production for the whole year is estimated to have reached a level of nearly 425 million tons, -6.40% year-on-year in 2021 and 5.81% year-on-year in 2020, and the overall crude steel production level has reached a high level unconsciously. Combined with April 19, "the National Development and Reform Commission said that in order to implement the decision-making and deployment of the Party Central Committee and the State Council and maintain the continuity and stability of the policy, the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Ecology and Environment, and the National Bureau of Statistics will continue to carry out the national crude steel production reduction work in 2022 to ensure that the national crude steel production will decline year-on-year". In the context of the policy goal of carbon peaking in the steel industry in 2030, starting from the continuity of the policy, we expect that the probability of the overall crude steel production at least maintaining the total level control this year is still large.  

According to the target of equal control of the total crude steel this year, in the current crude steel production situation, it is expected that the overall crude steel production in the second half of the year will decline significantly compared with the level in May, with the average monthly crude steel production in June-December expected to be 84.94 million tons, and the average daily crude steel production is 2.78 million tons, compared with the average daily crude steel production in late May, a decline of about 12%. A rough fit for projected crude steel production in the second half of 2022 is shown in Figure 8. In the case of learning from the experience of the previous year, the policy will be more obvious without "one-size-fits-all" structural adjustments, and the simple and crude means of reduction in 2021 are not expected to appear in 2022, and the greater probability of being replaced by local planned and more moderate reductions will be more likely.  

Reinforcement: It is difficult to fundamentally change the downstream demand in the second half of the year, and it is difficult for production to rebound significantly 

Since the second half of 2021, the real estate industry has continued to decline, and the output of steel bars, which is the main raw material in its upstream, has also been affected by this, and there has been a significant decline. From January to May 2022, China's cumulative steel production was about 97.48 million tons (of which the May Data and Statistics Bureau has not yet announced, which is our estimate based on the crude steel production in May and the proportion of steel reinforcement production in 2022), down 12.1% from the cumulative output of 110.88 million tons in January-May 2021.  

Since 2022, the gross profit of rebar (4258, 14.00, 0.33%) has continued to decline. At present, the gross profit of blast furnace and electric furnace is below 1/4 of the statistics in the past five years, that is, it is at an absolute low, and the profit of electric furnace is in a state of substantial loss.  

In the first half of 2022, real estate-related relaxation policies across the country were intensively introduced, but under the tone of "housing and not speculation", we believe that for the real estate industry, the purpose of national policies is only to stabilize, not to stimulate again, and then take the old road of relying on real estate to support the economy. Under such logic, we do not report optimistic expectations for the increase in demand for steel bars that real estate can give in the second half of the year. From the current data, it is expected that the demand for steel reinforcement that real estate can give in the next 1-2 months will still fall by more than 20%. On the high-frequency data side, the transaction area of commercial housing and the number of land supply are still at a low level, and there has been no significant improvement.  

Considering that the weak downstream demand for steel bars in the second half of the year is difficult to fundamentally change, and the supply side gross profit is in a low range, in the context of the expected decline in crude steel production in the second half of the year, we expect that the output of steel bars in the second half of the year will be difficult to rebound significantly.  

Magnesium metal: Production is expected to decline in the second half of the year, but it is still higher than the same period in 2021  

As a "high energy consumption and high pollution" industry, magnesium metal is greatly affected by the dual control of energy consumption. On September 13, 2021, the Development and Reform Commission of Yulin City, Shaanxi Province, issued the Notice on Ensuring the Completion of the 2021 Energy Consumption Dual Control Target Task, requiring that from September to the end of the year, some key energy-using enterprises should implement regulatory measures such as production restriction and suspension of production. As the main original magnesium producing area, the output accounts for about 60% of the total output of the country, and the production restriction of some key enterprises caused by the double control of energy consumption in the metal magnesium industry in Yulin area directly pushes up the price of metal magnesium once exceeded 65,000 yuan / ton, and the gross profit of metal magnesium production has also increased significantly.  

Since 2022, although the price of magnesium metal and gross profit have dropped significantly, the price of magnesium metal has fallen back to 25500 yuan / ton, and the gross profit has fallen back to 4500 yuan / ton, but it is still at a high level in the past five years, falling above the statistical value of 3/4 quantile. The high profit and the weakening of the impact of double control at the beginning of the year pushed up the production of magnesium metal in the first half of 2022. According to ferroalloy online data, from January to May 2022, the cumulative output of magnesium metal was 400,100 tons, an increase of 10.4% year-on-year.  

As the inventory of metal magnesium factories begins to accumulate significantly, the sales volume of automobiles and 3C digital industries corresponding to the main part of the downstream demand side of magnesium alloy demand is weakening, coupled with the large probability that the automotive industry has entered the passive accumulation cycle, it is expected to drive the demand for metal magnesium to weaken month-on-month, thereby driving the price of metal magnesium and gross profit to continue to fall.  

In addition, for the Yulin area has formed a "coal -electricity -lan carbon -ferrosilicon -metal magnesium -aluminum magnesium alloy" circular economy industrial chain. Due to the dual control of energy consumption and the limited new production capacity, its capacity expansion is weak. The Yulin municipal government has also repeatedly said that it will strictly control the production capacity of Lantan "only reduce and not increase". At the same time, in January 2022, the Yulin Municipal Development and Reform Commission issued a rectification notice on the environmental protection and energy saving problems of Orchid-related enterprises, involving enterprises whose production capacity accounted for 20.74% of the total production capacity of Yulin City.  

Under the combined effect of factors such as the marginal weakening of demand expectations, the continued decline in prices and gross profits, and the limited scale of Lan carbon production capacity in the industrial chain, it is expected that the supply of magnesium metal in Yulin may appear marginal contraction in the future. At the same time, considering the "double high" characteristics of metal magnesium, under the background of double control of energy consumption, the probability of accidental production restriction is still large. Therefore, magnesium metal production is expected to decline from the current level in the second half of the year, but considering that the overall profit level is still at a high level, it is expected that magnesium metal production will remain higher than the same period in the second half of 2021.  

Ferrosilicon exports: The Russian-Ukrainian conflict has led to the transfer of some overseas ferrosilicon demand to China, and with the continuous development of events, it is expected that the increase in demand in this part will continue in the second half of the year 

According to the public data of the General Administration of Customs, from January to April 2022, China exported a total of 272,200 tons of ferrosilicon, an increase of 119% year-on-year, and the export end of ferrosilicon showed a significant increase, and the increase was mainly from the transfer of overseas ferrosilicon demand caused by the Russian-Ukrainian conflict.  

Since February 24, 2022, when Russia announced special military operations against Ukraine, the Russian-Ukrainian conflict has continued to ferment, and its persistence has far exceeded market expectations. In the face of sanctions pressure and logistics restrictions, Russian ferroalloy exports have dropped significantly. Russia and Ukraine as one of the most important ferrosilicon exporters in the international market, the occurrence of the Russian-Ukrainian conflict, resulting in the transfer of ferrosilicon demand from its major ferrosilicon exporters, including Japan, South Korea, the Netherlands, Turkey, Mexico, India, to China, and China's major exporters of ferrosilicon to Russia and Ukraine has increased significantly.  

Since 2022, the cumulative crude steel output of China's major exporters of ferrosilicon has reached 160.195 million tons, down 0.2% year-on-year. The overall crude steel production of China's major exporters of ferrosilicon has returned to the pre-epidemic level, and it is expected that the increase in production from overseas crude steel production in the later period will have a limited contribution to the increase in demand for ferrosilicon exports.  

The Russian-Ukrainian conflict is still ongoing, and its subsequent impact and continuity are difficult to assess, but the sanctions imposed on Russia by countries dominated by Europe and the United States are expected to be difficult to eliminate in the short term, and may even escalate. Therefore, the transfer of overseas ferrosilicon demand to China caused by the Russian-Ukrainian conflict is expected to continue in the short term or even within the year, thus pushing up ferrosilicon exports in 2022 to remain at a high level.  

Combining the crude steel production of major exporting countries and the transfer of ferrosilicon demand to China caused by the Conflict between Russia and Ukraine, it is expected that the total export of ferrosilicon in the second half of the year will increase by about 30%-40% year-on-year.  

If the Russian-Ukrainian conflict is alleviated in the later period, and the European and American countries reduce the degree of sanctions against Russia based on the rise in energy shortage, some of the ferrosilicon export demand transferred to China may be reversed, so that the year-on-year growth rate of ferrosilicon exports will be greatly weakened or even negative (depending on the development of the Russian-Ukrainian conflict, and considering the crude steel production of exporting countries to remain stable or slightly reduced in the second half of the year).  

Analysis of the supply of ferroalloys in the second half of the year  

Policy: Do not rule out the phased mismatch between supply and demand caused by capacity replacement at the end of the year 

In November 2021 and March 2022, Ningxia and Inner Mongolia respectively issued relevant policy documents for the withdrawal and replacement of ferroalloy production capacity. In the document, Ningxia requires the elimination of ferroalloy production furnaces (except special ferroalloys) of 200 cubic meters and below, below 25,000 KVA, and no supporting construction of waste heat power generation by 2023. New construction and expansion projects need to meet the capacity of 1.5:1 replacement, do not accept inter-provincial replacement; Inner Mongolia requires, in principle, before the end of 2022 25,000KVA or less ore furnaces (except for special ferroalloys, specific types of special ferroalloys identified by the Department of Industry and Information Technology), eligible can be implemented in the ratio of 1.25:1 capacity reduction and replacement.  

According to the relevant capacity distribution data, in terms of ferrosilicon, the total production capacity of ferrosilicon in Inner Mongolia is 2.5 million tons, of which the restricted capacity is 1.75 million tons, accounting for 69.7%; The total production capacity of ferrosilicon in Ningxia is 1.41 million tons, of which the restricted capacity is 85,000 tons, accounting for 6%. In terms of manganese silicon, the total production capacity of manganese silicon in Inner Mongolia is 6.29 million tons, of which the restricted capacity is 1.6 million tons, accounting for 25.4%; The total production capacity of manganese silicon in Ningxia is 4.86 million tons, of which the restricted capacity is 1.21 million tons, accounting for 24.9%.  

Judging from the currently announced replacement of the metallurgical capacity of the Ordos West Gold Mine, the Inner Mongolia government allows the capacity replacement of the restricted capacity to be built first and then demolished, which greatly shortens the window period for eliminating production capacity and replacing production capacity, and it is expected that the overall empty window period will be shortened to 1-2 months, which will greatly reduce the impact on ferroalloy production.  

According to the estimation that the Inner Mongolia region will complete the elimination of backward production capacity by 80% in 2022 and Ningxia will complete 60%, it is assumed that the backward production capacity that can participate in capacity replacement accounts for 80% of the total. It is expected that during the empty window period of capacity replacement in Inner Mongolia and Ningxia, it will affect 67,600 tons of ferrosilicon and 93,600 tons of manganese silicon in a single month, and the impact is expected to be concentrated in November and December. After the empty window period, it is expected to affect the monthly output of ferrosilicon by 24,600 tons and the monthly output of manganese silicon by 37,300 tons.  

Manganese silicon: the supply and demand pattern is weak, in the second half of the year, the demand fell month-on-month, it is expected that the low profit situation will continue, and the supply side will be fixed on sales  

The cumulative output of manganese silicon from January to May 2022 was 3.976 million tons, a decrease of 5% over 2021. On the demand side, from January to May, the cumulative demand of manganese silicon was estimated to have dropped by about 9.75% year-on-year. The decline in demand is significantly higher than that of supply, resulting in the overall supply of manganese silicon in the first half of 2022. The decline in profits caused by the sluggish demand on the loose supply of downstream steel has reduced the profit distribution of the manganese silicon production end in the industrial chain. Since 2022, the production profit of the production area has continued to be below the median profit.  

With the continued downturn in profits, manganese silicon production has undergone a downward adjustment in May. Single-week production fell back from the highs of March and April and is currently lagging near the median production in the past four years. As a result, from January to mid-June, the cumulative output of manganese silicon fell to 9.17% compared with 2021, and the supply and demand pattern improved marginally, gradually changing from loose supply to supply and demand balance.  

The current production profit of the main manganese silicon production area is located near the 1/4 decile of the historical data statistics of the past five years and is still at a low level. The profits of the northern region represented by Inner Mongolia and Ningxia are meager, and the southern region represented by Guangxi has fallen into losses. Short-term low profits will limit the increase in production of enterprises, and there is not much room above the supply of manganese silicon.  

It is expected that with the gradual introduction and implementation of the crude steel leveling control policy in the second half of the year, the demand for manganese silicon will decline significantly with the implementation of crude steel leveling control, resulting in manganese silicon supply and demand once again towards supply relaxation, bringing further supply contraction.  

We believe that in the second half of the year, manganese silicon will appear on the supply side to set production, and the supply lags behind the rhythm of demand decline. In addition, with the addition of capacity replacement factors, companies may also choose to slow down supply and follow the pace of demand reduction before October and November, misalppling supply and demand that may result from the empty window period of capacity replacement.  

Ferrosilicon: It is expected that the supply and demand in the second half of the year will be converted from tight to slightly looser, and the high profit will fall back to drive the supply down slowly  

From January to May 2022, the cumulative output of ferrosilicon was 2.433 million tons, an increase of 1.18% over 2021; On the demand side, from January to May, the cumulative demand of ferrosilicon is estimated to have increased by about 3% year-on-year. In the first half of 2022, the supply and demand of ferrosilicon is in a tight supply pattern. In addition, ferrosilicon has been in a low inventory state. Tight supply and low inventory make ferrosilicon get more profit distribution in the industrial chain,  

In the first half of the year, the profit of ferrosilicon production continued to be higher than the 3/4 quantile of the historical data statistics in the past 5 years. Under the continuous high profit, the company's production enthusiasm is sufficient, and the output of ferrosilicon has been maintained at a high level.  

Among the non-steel demand for ferrosilicon, we believe that the demand for magnesium metal is expected to decline in the second half of the year, and exports will remain strong until the Russian-Ukrainian conflict is not properly resolved. On the main steel demand side, the demand brought by crude steel is expected to decline significantly with the introduction and landing of crude steel leveling control policies in the second half of the year.  

The decline in demand will gradually shift the supply and demand of ferrosilicon to a loose one, and the inventory side will accumulate, which will drive the profit of the iron and silicon production end to fall, which in turn will bring about a decline in supply.  

At present, the profit margin of ferrosilicon production in Qinghai and Ningxia is more than 15%, and the profit margin in Inner Mongolia is more than 10%. Under the high profit, in the short term, the willingness of enterprises to take the initiative to reduce production is insufficient, and the supply may continue to be at a high level.  

We believe that in the early half of the year, ferrosilicon will still maintain a high supply and demand, and the supply is relatively tight. However, with the introduction of the relevant policies for the flat control of the crude steel end, it is expected that in July and August, a significant decline in the demand side will drive the marginal loosening of the supply pattern, and the profit of ferrosilicon production will fall, bringing about a decline in the production enthusiasm of enterprises, and the supply will be slowly reduced.  

Iron alloy supply and demand balance deduction  

Manganese silicon: the supply is loose in July and September, and there may be a phased supply-demand mismatch caused by capacity replacement in mid-to-late October and November 

On the demand side, considering the carbon peak background and policy continuity, it is believed that the probability of crude steel maintaining at least the total amount of flat control this year is large. In the case that the cumulative crude steel production in January-May 2022 has reached a high level, it is expected that the crude steel production will decline significantly from the Level in May under the flat control policy in the second half of the year. Crude steel production restriction related policies are expected to be introduced in the off-season in July and August. Considering that the time window left for crude steel leveling control in 2022 is longer and the pressure to reduce the amount of pressure is lighter, the overall policy is expected to be milder than in 2021.  

Under the circumstance that it is difficult for the downstream real estate industry to fundamentally change, it is expected that the output will be difficult to rebound significantly.  

On the supply side, due to the weak supply and demand pattern, in the context of the decline in demand in the second half of the year, it is expected that the low profit situation will continue, the supply side will appear to be fixed by sales, and the output will lag behind the decline in demand. However, near the time node in November, there may be a phased decline in supply brought about by the elimination of backward production capacity and capacity replacement in Inner Mongolia and Ningxia.  

Therefore, the overall observation of the second half of 2022, before October, manganese silicon as a whole is in a loose supply pattern. With the middle and second half of the fourth quarter, the elimination of backward production capacity and capacity replacement in Inner Mongolia and Ningxia may bring about a phased mismatch between supply and demand, and the specific amplitude needs to be determined in combination with the actual replacement situation at that time, and the overall mismatch time window is short, and it is expected to be in 1-1.5 months.  

On the cost side, the cost of electricity is expected to remain high, and the probability of downward adjustment is not large; Manganese ore is expected to remain high under the multiple effects of low shipments, continued high sea freight rates and continued depreciation pressure on the renminbi against the US dollar, but may also be driven by a slight downward adjustment in prices as manganese silicon production falls. The cost center may move down to some extent, from around 8000 to around 7000-7300.  

Ferrosilicon: The supply is loose from July to September, and there may be a phased mismatch between supply and demand caused by capacity replacement in mid-to-late October and November 

On the demand side, the probability of crude steel maintaining at least flat control is large, and crude steel production is expected to decline significantly in the second half of the year;  

On the non-steel demand side, magnesium metal is expected to decline in output under the expected decline in demand for downstream automobile manufacturing and 3C digital accessories industry, and the decline in magnesium metal prices and gross profit; In terms of exports, the transfer of overseas ferrosilicon demand to China caused by the Russian-Ukrainian conflict is expected to remain strong as the Russian-Ukrainian conflict continues.  

On the supply side, high profits have driven output to remain high, and it is expected to have a slow downward revision as profits narrowed due to weakening demand. Near the November time node, there was also a short-term rapid decline in supply due to the replacement of capacity in Inner Mongolia and Ningxia.  

Therefore, like manganese silicon, it is expected that ferrosilicon will gradually shift from the current tight supply and demand balance pattern to loose supply in July and continue until September. Subsequently, there may be a phased mismatch between supply and demand caused by capacity replacement near the time node in mid-to-late October.  

On the cost side, the main cost of ferrosilicon comes from electricity, so under the judgment that the price of electricity is expected to remain high and the probability of downward adjustment is not large, the overall cost of ferrosilicon is limited, and the current cost is near 7200-7300. If there is a slight correction in coal prices, the cost may move down slightly to around 7000.  

Ferroalloy market outlook for the second half of 2022 

and strategy sharing 

On the whole, ferroalloy is expected to come out of the shock in the second half of the year, and then bottom out with the help of supply and demand mismatch to rebound.  

The reference position below the manganese silicon is near the 7000-7300 area, and the upper is expected to be near the 9000-9100 area, that is, the expected operating range of manganese silicon in the second half of the year is 7000-9100. Considering the greater price elasticity and change amplitude of ferrosilicon varieties themselves, the reference position below ferrosilicon is expected to be near 6600-6700, and the upper area is expected to be near 10000, that is, the reference operating range in the second half of the year is 6600-10000.  

It is expected that the trigger node of the market will occur in the phase of the introduction and landing of the crude steel production restriction policy in July and August, and the phase of rapid decline in supply caused by the elimination of backward production capacity and capacity replacement in mid-to-late October. Pay attention to the short selling opportunity of ferroalloys in July and the rally in October to do long market.