In theory, manganese is the next hot battery metal. In practice, it’s a commodity which ought to have a warning attached as a price slump threatens.
Interest in mining companies exposed to manganese surged two years ago when it was named by Tesla founder Elon Musk as a metal which could become an important component of the batteries used in electric vehicles.
Manganese miners and explorers enjoyed a short-term share-price jolt but since then it’s been mainly downhill as the reality of an over supplied market over-powers battery-metal mania.
Investors retreat from manganese
“Demand turning down as supply turns up,” was the sobering warning for the manganese cheer squad from big name investment bank Morgan Stanley in a research note published last week.
The potential for a steep fall in the manganese price can be seen in a retreat by investors from manganese-exposed stocks.
The first problem with manganese, and why investors should treat it with caution is that it remains largely a captive of the steel making industry in which it plays a role in removing impurities and preventing brittleness in steel of the sort blamed for the sinking of the Titanic in 1912, because it’s steel plates and rivets were made from low-manganese steel.
The second problem is that there is no shortage of manganese in the world with high prices invariably triggering a supply response, which leads to low prices, a point which Morgan Stanley believes the market might have reached today.
None of the negative forces in the market will dim the potential for manganese to develop a significant new market as a battery metal in much the same way as nickel, another steel making commodity, which is fast becoming better known as a battery metal.
But until the battery industry develops a significant appetite for manganese it will remain driven by the demands of steel mills and they’re already struggling with sluggish growth after the burst of activity largely funded by government stimulus spending which is coming to an end.
Woodie Woodie example
As if all that is not enough, manganese is notorious for its extreme price movements which can encourage the re-opening of marginal mines followed by equally quick mothballing with no better example than the Woodie Woodie mine also near Newman.
In the mid-1990s Valiant Exploration operated Woodie Woodie, until its financial collapse which saw control pass to Valiant’s trucking contractor managed by Michael Kiernan.
For a few good years, Valiant (renamed Consolidated Minerals) generated handsome profits as Kiernan almost singlehandedly rescued the business until losing control in a bitter takeover battle with Ukraine’s Mr Manganese, Gennadiy Bogolyubov, who was also forced to close the mine in 2016 after another collapse in the price of the metal before selling it to a Chinese company which restarted operations in 2017.
Apart from the potential for manganese to find a new market in the batteries of electric vehicles nothing has changed for a material heavily exposed to the global steel industry, especially in China where a rolling credit and power crisis is threatening a downturn in demand for all steel-making commodities.
Ominous days ahead
Morgan Stanley, in an ominous comment, said that manganese prices “have been stable for an unusually long time now” with material grading 44% manganese sitting at around US$5.10 per dry metric tonne unit (the complex way the metal is traded).
“This is a commodity known for extreme price moves which have largely been absent since January,” the bank said.
“Periodically we’ve seen attempts by producers to increase prices, followed by volume cuts by buyers. Until inventories have been drawn down this will most likely remain the case.”
High inventory levels are a warning sign, especially as global steel production starts to decline with major manganese producers in South Africa, Ghana and Gabon boosting shipments into a full market.
“We’re expecting an improvement in rail performance in South Africa, which should boost supply, plus we continue to see new supply additions with Glencore and Element 25 adding in 2021, Afrimat adding in 2023 and Eramet adding over the next two-to-three years,” the bank said.
The price outlook according to Morgan Stanley is for a slip to US$5/dmtu next year and then progressively down to US$4.50/dmtu in 2025 as the global stockpile swells from 500,000t to 1.7Mt.
It’s an outlook like that which screams survival of the fittest (and lowest costs) in the manganese market, with fingers crossed that demand from battery makers turns out to be as strong as promised.
But given the history of manganese as a metal which routinely flies high before crashing back to earth the current market dynamics point to the potential for a significant downturn.