In 2023, the global economy faced significant growth challenges. During the first half of the year, domestic economic activities encountered considerable pressure, particularly in the real estate sector, which experienced a slowdown. This decline in real estate activity, coupled with low consumer confidence and reduced consumption, led to negative repercussions throughout the supply chain, impacting upstream raw material suppliers.
The market price of ferrosilicon continued to decline in the first half of the year, resulting in significantly narrowed profit margins, reduced supply, and sluggish demand. The market exhibited a weak supply and demand dynamic, influenced by falling prices of raw materials such as blue carbon and iron oxide sheets.
Comparing the first half of 2023 with the same period in 2022, the production cost of ferrosilicon in Qinghai decreased by 5.85%, reaching 7,134 yuan per ton, while Ningxia saw a year-on-year decrease of 8.05% with a production cost of 7,323 yuan per ton. According to customs data, ferrosilicon exports in 2022 totaled 647,200 tons, a 122,100-ton increase compared to 2021. However, in the first five months of 2023, exports declined by 154,100 tons, marking a year-on-year decrease of 45.19%.
Looking ahead to the second half of 2023 in the Chinese ferrosilicon market
Ferrosilicon Production Forecast
Ferrosilicon production is expected to decline further. The economic pressures, both domestic and foreign, have led to compressed sales and trade orders, particularly affecting the real estate sector. The decrease in terminal demand has impacted the raw material side, causing a continuous fall in ferrosilicon prices in the first half of the year. Manufacturers’ profits have shrunk, leading to adjustments in production capacity. While new and replacement furnaces are expected to come online in the second half of the year, the full-year output in 2023 is anticipated to be lower than that of 2022, estimated at around 5.4 million tons.
Ferrosilicon Production Cost Forecast
The focus on ferrosilicon production costs is expected to trend downward. Electricity costs constitute a significant portion of the total cost, and substantial reductions in electricity costs are unlikely. While the market price of blue carbon has fallen, further decreases are anticipated to be limited. Silica prices remain relatively stable. As a result, the overall trend for ferrosilicon production costs is expected to shift downward in the second half of the year, although the movement is not expected to be significant.
Ferrosilicon Demand Forecast
Both supply and demand are projected to decline. Steel mills are maintaining a strategy of low inventory for raw material procurement in the current year. Shutdowns in magnesium ingot production due to regulatory actions in Fugu Lan Tan, coupled with stoppages in some magnesium plants, have led to reduced demand for ferrosilicon. Exports have also contracted notably. Casting activities are sluggish, further contributing to the expected decline in ferrosilicon production in 2023. Consequently, the overall supply and demand balance is anticipated to be loose, with high social inventories.
Ferrosilicon Price Outlook for the Second Half of the Year
Considering cost factors, the focus on ferrosilicon costs is shifting downward. From a supply perspective, ferrosilicon output is expected to decrease in 2023. In terms of demand, steel mills are likely to remain stable with a slight decrease, while the metal magnesium, exports, and casting sectors are all expected to decline. As a result, the average price of ferrosilicon is anticipated to be higher in the second half of the year. While prices experienced a decline in the first half of the year, price fluctuations are expected to narrow in the coming months.