Squeeze on manganese not a COVID-19 thing, it’s just the nature of the market

South32's manganese mine in Hotazhel

THE ebb and flow in the price of manganese recently, which is important in the manufacture of steel to which it gives hardening properties, has been blamed on COVID-19. But this may be a mistake, according to analysts at Morgan Stanley in a recent report.

“The recent squeeze in manganese prices is wrongly blamed on the South African lockdown,” said Christopher Nicolson, Jared Hoover and Brian Morgan, analysts for the bank. “In fact, today’s high prices are a function of last year’s low prices, paving the way for prices to fall again,” they said.

It was this pulse in the cycle that has proved to be part of the undoing of Kalagadi Manganese, the company owned by award-winning entrepreneur Daphne Mashile-Nkosi. The Industrial Development Corporation (IDC) is also a significant shareholder in Kalagadi Manganese. The two entities are currently fighting in court on whether the company’s management ought to be restructured ahead of putting the firm into liquidation.

Whilst COVID-19 may look like the final nail in the coffin of Kalagadi Manganese, as it currently exists, it’s the nature of the market against which a future company ought to be configured. As Morgan Stanley analysts argue, manganese is inherently volatile.

“The trouble with bulk commodity markets is that imbalances between supply and demand can’t be corrected by inventory swing,” the bank says. “Inventories are simply too bulky and storage space too constrained. So when there is an over-supply situation, mine supply has to respond.”

South32, one of South Africa’s largest manganese producers, has often complained of opportunistic production of the mineral, especially ore exports.

According to Morgan Stanley, manganese prices as spot (the report was written on June 4) was equal to 40% of South32’s earnings before interest, tax, depreciation and amortisation (EBITDA) and 22% of African Rainbow Minerals’ EBITDA for its 2021 financial year so it’s fluctuations are worth following.

These are both multi-commodity ‘mining houses’ so one can only imagine the impact the price has on the likes of a pure-play like the beleaguered Kalagadi Manganese.