Monday, September 17, 2007

The Emerging Manganese Bull Market

Although manganese is the fourth most heavily consumed metal behind iron, aluminum and copper, most investors have failed to observe the dramatic bull market in manganese which began unfolding this past spring.

About 34 million tons of manganese ore were mined in 2006.

Manganese (Mn) is a key component in steel and iron production, which accounts for up to 90 percent of the metals current consumption. But, the grey-white metal also plays an important role in low-cost stainless steel formulations and aluminum alloys. For example, manganese steels contain up to 14 percent Mn.

In 2006, the global unit consumption of manganese ferroalloys was approximately 10 kilograms alloy per metric ton of steel produced.

In specialty alloys, where nickel is replaced in part or entirely by manganese, the Mn content can run as high as 16 percent. Hadfield Steel contains 13 percent or more manganese. This brand of steel requires toughness and wear-resistance for applications in gyratory crushers, jaw crusher plates, rail steel and cutting edges for earth-moving equipment.

Earlier this year, Allegheny Ludlum explained high prices had forced the specialty steelmaker to replace nickel with manganese in some of its products. This spring, Finnish stainless steel manufacturer Outokumpu launched a duplex stainless product, LDX 2101, as a nickel-free stainless. The product utilizes a greater percentage of manganese instead of nickel.

Where applications permit, the stainless steel market is hoping to move away from austenitics to duplex, ferritic and other grades in order to rely less upon nickel. One report suggested chrome-manganese production could jump by 50 percent within two years. Consequently, the nickel-chrome grades could lose 20 percent of their stainless steel market share.

Why Manganese?

Aside from a small circle of metallurgists, chemists and miners, manganese is not a well-known element. Appearance-wise, it resembles iron.

By virtue of its properties sulfur-fixing, deoxidizing and alloying, manganese is essential to iron and steel production. If you dropped a crescent wrench on a cement floor, it would shatter into pieces if the wrench were made without manganese. It is the glue that binds, hardens and prevents iron and steel products from being too brittle.

Some manganese compounds have been added to gasoline to boost octane rating and reduce engine knocking. In organic chemistry, manganese dioxide is used as a reagent for the oxidation of benzylic alcohols. Manganese has a vast array of industrial uses rust and corrosion prevention on steel, paint pigments, dry cell and alkaline batteries, animal feed, glass production, fertilizers and many medical and health applications.

China will depend upon the manganese in railroad steel rails as the country dramatically expands its rail system over the next decade.

The automotive industry will depend upon manganese for the next generation of hybrid electric automobiles and fuel cells. Manganese can not only reduce costs in car body components offering less weight in auto frames, but it can also add greater structural strength. Toyota reportedly is close to perfecting a lithium-manganese ion battery for the Hybrid Electric Vehicles (HEV). The new generation cathodic materials include manganese and have more power capability, longer runtime and are more cost-effective because they are smaller and lighter.

Aluminum alloys utilize small quantities of manganese to enhance corrosion resistance. Many commercial copper alloys contain up to two percent manganese. And uranium ore is processed with manganese as an oxidizing agent to produce yellowcake for use in nuclear reactors.

New applications for manganese are being researched. Recently, at Kyoto University in Japan, researchers have developed a new process designed to reproduce the photosynthesis process. By using manganese dioxide, it may be possible to absorb a large quantity of carbon dioxide (CO2) emissions, which contribute to global warming.

According to the U.S. Geological Survey, Manganese has no satisfactory substitute in its major applications.

On the Manganese Production Front

Over 80 percent of the known world manganese resources are found in South Africa and the Ukraine. Other major manganese deposits are found in China, Australia, Brazil, Gabon, India and Mexico. In recent years, up to 60 percent of world manganese ferro-alloy production comes from South Africa, China and the Ukraine.

The United States imports more than 50 percent of its manganese from South Africa and Gabon.

Fewer countries now produce manganese and ferro-manganese than in the previous decade. Major producing countries such as Canada and the United Kingdom ceased production in the early 1990s. Japan and Germany curtailed their output during an era of cheap manganese when the metal sold for pennies per pound.

By 2001, the manganese ferro-alloys industry estimated it had a 40-percent overcapacity much of this was found in China and the CIS. China closed many of its unprofitable manganese operations; fewer than 10 out of 800 were believed to be profitable.

Presently, no new manganese mines appear on the near-term horizon.

As has been found with other metals predominantly uranium and molybdenum, a drought over more than one or two decades caused prices to dramatically rise in recent years. Manganeses price rise is the same condition found in other mineral spaces - far too few new mines for far too many years.

But, manganese demand jumped by 14 percent.

According to the International Iron and Steel Institute, world crude steel production of the 67 reporting countries increased by 10.2 percent of 2007 compared to the comparable period a year earlier.

In the report for 2007, the International Manganese Institute announced, Manganese demand prospects have never been so good. Key points included:

Manganese intensive steel grades to grow faster than average

Specific manganese consumption growing again

Steel demand to exceed six percent per year for many years to come

Limited down risks for the next ten to fifteen years

Note: Manganese-intensive steels represent 13 percent of total stainless steel production, but consume 41 percent of the total amount of manganese consumed by the steel industry.

To meet the growing demand, BHP Billiton announced it had ramped up manganese production to a record 1.5 million tons. Consolidated Minerals Ltd of Australia has dramatically increased manganese production over the past two years. Other large manganese mines have also increased production.

U.S. Manganese

Because it is essential to steel production, the U.S. government considers manganese a strategic metal. According to Lisa Corathers, U.S. Geological Survey manganese commodity specialist, A continued supply of manganese materials is vital to any defense effort as well as to maintenance and growth of an industrial economy.

Concerned about adequate inventories, the U.S. government began stockpiling manganese after World War II. But, by 1965, the federal government began selling off manganese materials, which they believed were in excess of what was required. By 2003, the government had whittled down its stockpiles to less than two years of manganese consumption.

Corathers said, The United States has been reliant upon 100 percent of its manganese needs since 1985.

We talked with Larry Reaugh, chief executive of Rocher Deboule Minerals Corp which recently acquired the open pit-able Artillery Peak (Arizona) manganese resource. Unless we are mistaken, he is the only junior mining explorationist currently acquiring manganese resources in the United States and Canada.

Reaugh told us, I have been watching manganese intently for the past several months. The price has risen dramatically this year, bringing large low grade deposits into the realm of feasibility.

He pointed out, Manganese is one of the top four strategic metals in the United States, which has no domestic production, and which is also subject to imports from countries which for the most part have political instability. And this creates uncertainty for U.S. supply.

Although prices for nickel, cobalt, vanadium and molybdenum have respectively surged higher by seven-fold, four-fold, six-fold and six-fold, manganese has but doubled in price. The grey-white metal may have more room for growth in the years ahead.


James Finch contributes to and other publications. He has contributed to the widely popular Investing in the Great Uranium Bull Market, and Uranium Outlook 2007 - 2008. His recent work, Investing in Chinas Energy Crisis, is now available at

Ken Reser is a research consultant who has covered the molybdenum sector for more than two years and recently began coverage on manganese. Contact: Email: