Author: Yang Hui, Black Analyst of Meier Ya (600107) FuturesWhat are the main reasons behind China's transition from a net exporter of ferroalloys to a net importer of ferroalloys in 2009? Exploring the evolution process and influencing factors of China's ferroalloy trade pattern is conducive to a profound understanding of the relevant policies of the country regarding the ferroalloy industry, including import and export policies, industrial policies, etc. It is beneficial for industry operators and relevant practitioners to keep up with the pace of the times, grasp the development context and direction of the industry from a national strategic perspective, and guide their actual production and operation. This article mainly analyzes the evolution of the scale and pattern of China's ferroalloy trade, explains the main reasons for the transformation of the ferroalloy trade pattern, and briefly introduces the import and export overview of the main futures varieties of silicon iron and silicon manganese, hoping to provide some reference for the industry.OneThe scale and evolution of China's ferroalloy trade1. Overview of the total import and export volume of ferroalloys in ChinaSince the millennium, China's ferroalloy import and export trade pattern has undergone a significant transformation, from a net exporter of ferroalloys to a net importer of ferroalloys. The watershed for this transformation was 2009, as shown in Figure 1. Before 2009, China was a net exporter of ferroalloys, but after 2009, it became a net importer of ferroalloys. The export volume of ferroalloys in China reached a peak of 3.876 million tons in 2008, followed by a significant decline in export volume. Since 2011, the import volume of ferroalloys in China has even exceeded twice the export volume, and the import scale has become increasingly large. In 2022, the import volume of ferroalloys in China was 8.426 million tons, an increase of nearly 300% compared to 2.1135 million tons in 2011.The evolution of China's ferroalloy import and export pattern is mainly related to the country's import and export policies for ferroalloys, ferroalloy industry policies, and China's resource endowment. Ferroalloy belongs to a typical "two high and one capital" industry, which is a high pollution, high energy consumption, and resource intensive industry. Its product added value is not high, and it is mostly a primary product. It is a type of product that the country does not encourage exports. Therefore, since 2005, China has successively cancelled the export tax rebates for 16 types of ferroalloy products and gradually imposed export tariffs on ferroalloy products to increase the export cost of ferroalloy products and restrict the export of resource based primary products. Over the years since then, the country has gradually raised export tariffs on ferroalloys, which is the main reason for the decline in China's ferroalloy export volume. The policy of restricting the blind expansion of ferroalloy production capacity and eliminating outdated production capacity by the state also restricts the export of ferroalloys. In addition, China's raw materials for ferroalloy production, such as manganese, chromium, nickel, and other resources, are scarce. Every year, a large amount of manganese ore, chromium ore, and nickel ore required for ferroalloy production need to be imported. Resource endowment is also an important reason for China's gradual transformation into a net importer of ferroalloys.2. Import and export situation of different types of ferroalloys in ChinaIn the import and export trade of China's main ferroalloy products, silicon iron and silicon manganese are net export products; Chromium iron, nickel iron, and niobium iron are net imported products; Among them, ferrosilicon is the iron alloy product with the largest export volume, nickel iron is the iron alloy product with the largest import volume in recent years, followed by chromium iron; Other varieties such as manganese iron, molybdenum iron, tungsten iron, titanium iron, silicon titanium iron, vanadium iron, etc. have a relatively small proportion in China's ferroalloy import and export trade.According to the statistical data of different varieties, in terms of import volume, among the ferroalloy products imported by China in 2022, nickel iron has the largest import scale. In 2022, China imported 5.8961 million tons of nickel iron, and in 2011, the import volume of nickel iron was 144500 tons, with a growth rate of up to 3980%; Next is ferrochrome, with 2.3837 million tons of imported ferrochrome in 2022 and 1.8065 million tons of imported ferrochrome in 2011, a growth rate of 32%.In terms of exports, among the ferroalloy products exported by China, the scale of ferrosilicon exports is the largest. In 2022, the export volume of ferrosilicon reached 675100 tons, accounting for 61% of the total ferroalloy exports. In 2011, China exported 621500 tons of ferrosilicon, and the export volume of ferrosilicon in 2022 increased by 9% compared to 2011. The second largest variety of ferroalloy exports in China is silicon manganese. In 2022, China exported 115400 tons of silicon manganese, accounting for 10.5% of the total ferroalloy exports. In 2011, China exported 17200 tons of silicon manganese. In 2022, the export volume of silicon manganese increased by 571% compared to 2011, with a significant increase.TwoThe main factors affecting the changes in the trade pattern of ferroalloys1. Tariff policySince the beginning of 2005, the country has successively cancelled export tax refunds for 16 types of ferroalloy products, imposed 5% export tariffs on silicon and manganese alloys, issued joint announcements on "Prohibiting Processing Trade with Corresponding Processing and Manufacturing Relationships in Import and Export Catalogues", and "Notice on Promoting Accelerated Structural Adjustment of the Ferroalloy Industry". Starting from November 2006, the export tariff on ferroalloys was increased to 10%. In order to further control the export of high energy consumption, high pollution, and resource-based products, in June 2007, the country once again raised export tariffs on some commodities, and increased export tariffs on some ferroalloy products to 15%. However, due to the expansion of domestic production capacity and the rising demand in the international market, the export of ferroalloys still maintains a significant growth trend. Therefore, in 2008, the country once again raised the export tax rate of ferroalloy products, and raised silicon manganese and manganese iron to 20%; Increase ferrosilicon to 25%; For the scarce ferrochrome in our country, the export tax rate is adjusted to 40%, but a provisional export tax rate of 20% is implemented; The temporary export tax rate for nickel iron, molybdenum iron, tungsten iron, vanadium iron, niobium iron and other varieties is 20%.The adjustment in 2008 basically formed the embryonic form of China's export tariff rate policy for ferroalloy products, and subsequent adjustments were made based on this adjustment. Among them, in 2017, the temporary export tax rate for some ferroalloy varieties was lowered, and the temporary export tax rate for ferrosilicon was lowered to 20%; The temporary tax rate for exports of ferrochromium, ferrosilicon chromium, ferrotitanium, ferrosilicon titanium, and ferroniobium has been lowered to 15%. In 2018, the temporary tax rate for exports of ferrosilicon, ferrotitanium, ferrosilicon, other ferrovanadium, and ferroniobium will be further reduced to 10%. Starting from 2019, the temporary export tariff of 10% on some ferroalloys such as silicon chromium iron, titanium iron, silicon titanium iron, vanadium iron, and niobium iron will be abolished. After the temporary export tax rate of ferrochromium was increased from 15% to 20% on May 1, 2021, the 20% temporary tax rate discount was cancelled in 2022, and the 40% export tax rate was applied. The 25% export tax rate was also restored for ferrosilicon.On December 29, 2022, the State Council Tariff Commission issued a notice on the 2023 tariff adjustment plan, in which export tariff rates continued to impose export tariffs on 106 commodities such as ferrochrome. According to the Import and Export Tariff Regulations of the People's Republic of China (2023), the import and export tariff rates of major ferroalloy varieties are shown in Tables 4 and 5.Compared to imposing high tariffs on exports, China imposes relatively low tariffs on the import of ferroalloy products, with an overall tax rate (most favored nation tax rate) ranging from 2% to 5%. Some varieties, such as ferrochrome, ferronickel, and ferroniobium, are encouraged to import, and currently implement a temporary import tax rate of zero most favored nation tax rate.2. Changes in ferroalloy production capacityIn addition to tariff policies, changes in domestic ferroalloy production capacity also affect China's ferroalloy import and export trade pattern. The overall capacity utilization rate of China's ferroalloy industry is relatively low, with severe overcapacity. Taking ferrosilicon products as an example, in recent years, the average production capacity utilization rate of domestic ferrosilicon enterprises has been consistently below 50%, at a relatively low level. The overcapacity in the ferroalloy industry is mainly caused by blind investment and low-level expansion. In 2000, China's ferroalloy production was only 4.029 million tons. In 2005, it exceeded 10 million tons for the first time, reaching 10.67 million tons, with a growth rate of 165% over six years.The rapid growth of domestic ferroalloy production has attracted the attention of relevant national departments. Since 2006, measures have been introduced to control the growth of ferroalloy production, from industry access to electricity, environmental protection, credit financing, and so on. Although it has played some roles, the effect is still unclear, and ferroalloy production is still growing rapidly.In February 2008, the National Development and Reform Commission issued revised announcements No. 13 of 2008 on the "Access Conditions for the Ferroalloy Industry" and "Access Conditions for Electrolytic Metal Manganese Enterprises", which provided detailed regulations for the smelting equipment of ferroalloys such as silicon iron, silicon manganese, manganese iron, chromium iron, metal silicon, silicon calcium, molybdenum iron, and titanium iron. Equipment that did not meet the regulations will be gradually phased out, but elimination requires a process, Only then can we achieve the adjustment and optimization of industrial structure without disrupting the industrial chain.In December 2011, the Ministry of Industry and Information Technology set a goal of eliminating outdated production capacity of 7.4 million tons in the ferroalloy industry during the 12th Five Year Plan period, ultimately achieving the elimination of 11.3792 million tons; In 2013, according to the requirements of the "Catalogue for Guiding the Elimination of Backward Production Process Equipment and Products in Some Industrial Industries (2010 Edition)", the Ministry of Industry and Information Technology announced the revocation of the list of 180 enterprises that did not meet the admission conditions for the ferroalloy industry; In 2015, the Ministry of Industry and Information Technology issued a new "Access Conditions for the Ferroalloy Industry (Revised in 2015)" to improve the access conditions; In the same year, the Industrial Policy Department of the Ministry of Industry and Information Technology revised and issued the "Normative Conditions for the Ferroalloy and Electrolytic Metal Manganese Industry" and the "Announcement Management Measures for Ferroalloy and Electrolytic Metal Manganese Production Enterprises", promoting the structural adjustment and optimization upgrade of the ferroalloy and electrolytic metal manganese industry, guiding and regulating the investment and production operation of ferroalloy and electrolytic metal manganese enterprises. This series of industrial policies has achieved certain results. According to data from the Ministry of Industry and Information Technology, from 2010 to 2015, a total of 13.8352 million tons of outdated ferroalloy production capacity were eliminated nationwide. Starting from 2016, the central environmental supervision work was fully launched to curb the redundant construction of low-level and outdated production capacity, and encourage advantageous enterprises in the industry to vigorously develop the circular economy through large-scale and intensive operations.With the implementation of various national industrial policies, ferroalloy enterprises with outdated technology and equipment, small scale, and poor management level will gradually withdraw from competition, which is beneficial for advantageous enterprises in the ferroalloy industry to carry out large-scale and intensive production and improve their production management level.ThreeOverview of Import and Export of Main Futures Varieties of Silicon Iron and Silicon Manganese1. Overview of Import and Export of FerrosiliconThe situation of China's ferrosilicon import and export trade is generally dominated by exports, but the proportion of exports relative to domestic production is relatively small. In 2022, China's ferrosilicon production was 5.97 million tons, with an export volume of only 675100 tons, and the proportion of exports to domestic production was only 11%. From Figure 4, it can be seen that the export quantity of ferrosilicon in China is far greater than the import quantity, and the net export quantity is basically equal to the export quantity.Due to the relatively small import volume compared to export volume and the negligible domestic production, the focus of analyzing the flow of ferrosilicon import and export trade is on the situation of ferrosilicon exports. From a seasonal perspective, the quantity of ferrosilicon exports in China is prone to peak in March and April of the first half of the year. The main reason may be the preference for overseas demand during the peak season of the first half of the year, while the seasonal pattern of ferrosilicon exports in the second half of the year is not obvious. From the perspective of export flow, China's ferrosilicon is mainly exported to Japan, South Korea, Indonesia, Taiwan, China, Vietnam, Thailand and other Asian countries and regions, as well as the United States, Mexico, Australia and other countries. Among them, Japan and South Korea are the largest target countries for China's ferrosilicon exports, and the amount of ferrosilicon exported to these two countries can account for about 40% of China's total ferrosilicon exports. In 2022, China's ferrosilicon export volume was 675100 tons, of which 122800 tons were exported to Japan, accounting for 18% of China's total ferrosilicon export volume; The quantity of ferrosilicon exported to South Korea is 148200 tons, accounting for 22% of China's total ferrosilicon exports.2. Overview of Import and Export of Silicon ManganeseCompared to the domestic production of silicon and manganese, the import and export volume of silicon and manganese in China are relatively small, and are not the main import and export varieties of ferroalloys. In 2022, China's silicon and manganese production reached 9.65 million tons, with an import volume of 12800 tons and an export volume of 115400 tons. The proportion of imports to domestic production was only 0.1%, while the proportion of exports to domestic production was less than 2%. Figure 9 shows that since the outbreak of the epidemic in 2020, 2021, and 2022, China's silicon and manganese exports have increased significantly compared to before the epidemic. In the years before the epidemic, from 2016 to 2019, China's silicon and manganese exports were all below 10000 tons. This is because after the epidemic, with the economic recovery of overseas countries, the demand for ferroalloys increased, and the Russia-Ukraine conflict exacerbated the European energy crisis. Coal-fired power generation has been basically phased out in Europe, and the shortage of wind power has led to a surge in natural gas prices and a shortage of electricity. The power density of ferroalloy devices is very high, and a lack of power will cause the temporary closure of ferroalloy devices, and overseas countries will need to import ferroalloys from countries with lower power costs.Although the import and export trade volume of silicon and manganese in China is very small, the main raw material for producing silicon and manganese is manganese ore, which needs to be imported in large quantities. Manganese ore can account for about 60% of the production cost of silicon manganese. Due to the shortage of manganese ore resources in China and the low grade of domestic manganese ore, China needs to import a large amount of manganese ore resources all year round.In 2022, China imported a total of 29.9317 million tons of manganese ore, an increase of 1339% compared to 2.08 million tons in 2002. In 2010, the import volume of manganese ore in China exceeded 10 million tons for the first time. In the following years, until 2019 before the epidemic, with the consumption of domestic manganese ore resources and lower taste, the quantity of imported manganese ore in China showed an accelerated growth trend, reaching its highest level of 34.1592 million tons in 2019. In the three years since the epidemic, the import quantity of manganese ore in China has declined. From the perspective of import source countries, South Africa is the largest source of manganese ore imports for China. In 2022, China imported 14.6922 million tons of South African manganese ore, accounting for 49% of China's total manganese ore imports; Next is Gabon. In 2022, China imported 5.1331 million tons of Gabonese manganese ore, accounting for 17% of China's total manganese ore imports; The third is Australia. In 2022, China imported 4.2071 million tons of Australian manganese ore, accounting for 14% of China's total manganese ore imports. Ghana and Brazil ranked fourth and fifth respectively, with manganese ore imports of 2.7 million tons and 890600 tons in 2022, accounting for 9% and 3% of China's total manganese ore imports, respectively. In 2022, a total of 27.623 million tons of manganese ore were imported from these five countries, accounting for 92% of the total manganese ore imports.
