While base metal prices continue to rise as supply dries up, one base metal has witnessed a price slump which has had a detrimental effect on the profit results of its miners.
While base metal prices continue to rise as supply dries up, one base metal has witnessed a price slump which has had a detrimental effect on the profit results of its miners.
The commodity in question is manganese, which in alloy form is used as a hardener in steel and for anti-corrosion purposes with a large chunk of demand coming from Chinese steelmakers.
However, the continued oversupply of manganese ore and alloy has resulted in the manganese market taking a worldwide nose-dive.
According to West-Perth based manganese miner Consolidated Minerals, it received price highs of almost $US4.20 per dry metric tonne unit in March of last year, compared with a long term benchmark price of $2.20 per dmtu.
Since then the company witnessed the price slump to as low as $US2.11 per dmtu in May this year.
DJ Carmichaels resource analyst Paul Adams told WA Business News that manganese, unlike other base metals, is not in a tight supply constraint.
“It’s easy to fulfil all the supply side of the equation [for manganese] while the demand side [unlike other base metals] is hard to fill,” he said.
“It is not like zinc or a copper that are at critical levels of supply.”
The price slump has put a dampener on the profit results of ASX listed manganese miners Consolidated Minerals and OM Holdings, with both highlighting the oversupply of alloy and increases in ore stockpiles in China.
However, according to Consolidated Minerals managing director Rod Baxter, the manganese market had stabilised with a recent correction in oversupply and sales showing improvement in prices.
The company, which was listed 35th top WA stock in terms of market capitalisation in the WA Business News Total Shareholder Return survey, bore the brunt of the price fall which Mr Baxter said cost the company, in revenue terms, $80 million.
“This negative impact was partially offset by a 46 per cent increase in manganese production, but overall manganese revenue was still down to $120 million from $147 million in FY05,” he said.
The company, while looking to expand its existing business groups including manganese and nickel, is also focusing on further diversification and growth through exploration and acquisition.
Mr Adams said the manganese price fall and subsequent drop off in manganese revenue was a major reason behind the company’s strategic vision of diversifying their resource base, with its initial focus on copper, zinc and iron ore.
Last week, the company announced an unexpected net loss of $6.5 million for the financial year, compared with a $65.2 million profit the company reported in the corresponding period last year, and comes after it forecast a profit of $85 million in March this year.
Consolidated Minerals will with-draw specific forecasts and replace them with guidance on production volumes and costs in the future.
Singapore-based ASX listed OM Holdings also sighted the worldwide downturn in the manganese market as the reason behind the company posting a net profit of $0.33 million for the half year, compared with $6.72 million in the corresponding period.
