The Economist explains
Why it matters that magnesium is in short supply
China has cut production of the lightweight metal used in cars, packaging and planes
SCHOOLCHILDREN KNOW magnesium for the bright white flame it produces. But teachers might want to consider cheaper experiments soon. The price of the metal, which in recent years has hovered around $2,000 per tonne, peaked at more than $11,000 in September. Outside the classroom magnesium is used in small amounts to add strength to aluminium alloys, which are then used in building supplies and packaging. This accounts for around 40% of the world’s magnesium production, according to European Aluminium, an industry body. A similar amount is used to cast parts, used mostly in cars, such as gearboxes and seat frames. It goes into planes, expensive laptops and other goods too. The price of magnesium had come down to $5,300 by November 13th, but some manufacturers are jittery. On a recent earnings call Volkswagen’s head of purchasing said a magnesium shortage “will happen definitely”. Matalco, one of America’s largest aluminium producers, has warned customers that it may have to ration deliveries next year. What explains the price spike, and are manufacturers right to be worried?
China produces around 85% of the world’s magnesium. In 2020 that amounted to 961,000 tonnes, mostly from Yulin, in northern Shaanxi province. The energy cost of production is high: about 4kg of coal is needed to produce 1kg of magnesium. In September officials in Yulin told at least 40 producers to either shut down or reduce their output to cut emissions and meet energy-consumption targets. In other magnesium-producing parts of China, high coal prices have caused power outages. Yulin’s production in September was almost 40% below its level in June, the year’s peak. Since then magnesium producers have increased their output, but they remain throttled. China’s slowdown could mean around 120,000 tonnes of production is lost this year, according to S&P Global Platts Analytics, a research firm.
Europe is particularly vulnerable. It gets 95% of its magnesium supply from China. Last month WV Metalle, a German metals trade association, said it expected the country’s magnesium reserves to run out by the end of November. But not everyone is so concerned. Both BMW and Stellantis (a carmaking conglomerate whose largest shareholder, Exor, partly owns The Economist’s parent company) told Reuters last week that they have a plentiful supply. Semiconductor shortages are the more pressing worry for the auto sector, says James Reilly of Capital Economics, a consultancy. And America imposes protectionist tariffs of more than 140% on Chinese magnesium. It gets supplies from one producer of virgin metal in Utah, as well as a small amount of imports. Both Ford and General Motors have said they use almost no Chinese magnesium in their vehicles.
A prolonged reduction in magnesium supply could still be damaging. Carmakers’ supply chains are vulnerable, as their reliance on chip firms has demonstrated. ZF, a maker of gearboxes for several big manufacturers including BMW, said last week that it was looking for new sources of magnesium but that options were limited outside China. European Aluminium is concerned that even if output returns to normal, China will prioritise the needs of its own economy over exports. In a world where shortages have become the biggest impediment to economic growth, industries that use magnesium can ill afford another supply-chain headache.
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