Manganese Prices May Extend Record Gains as China Limits Output

The price of manganese, used to strengthen steel, may extend record
gains in 2008 as China curbs output, boosting costs for Japanese
companies such as Nippon Steel Corp. and JFE Holdings Inc., executives
said.

Japan's import price for so-called silico-manganese, the alloy used in
steel-making, jumped 73 percent in November from a year earlier to
141,734 yen ($1,278) per ton, Japan's Ministry of Finance said Nov.
30.

"Steel materials such as manganese are in chronic short supply," said
Atsushi Yamaguchi, an analyst at UBS AG in Tokyo, in a phone
interview. Higher prices may have a "negative impact" on earnings if
steelmakers fail to pass on costs.

Nippon Steel, Japan's largest producer, JFE Holdings, the
second-biggest, and South Korea's Posco said higher raw material and
shipping costs damped earnings in the most recent quarter.

China produces half the manganese alloy used globally for
steel-making, partly from imported ore, according to Japan's
Ferroalloy Association. Steelmakers in Japan depended on Chinese
imports for 64 percent of the 340,607 tons of silico-manganese they
used in the year ended March 31, 2007.

"Manganese alloy prices will very likely rise in 2008," said Yuichiro
Sekine, an official in charge of procuring materials at Nippon Steel
Trading Co., a unit of Nippon Steel.

Concern over electricity shortages and environmental pollution spurred
the Chinese government to cut production of manganese alloy, said
Yasushi Takagi, a director at Nippon Denko Co., a materials supplier
to Nippon Steel, which imports all its silico-manganese from China.

Chinese Curbs

The Chinese government said in 2005 it planned to cut annual
production capacity for ferroalloys including manganese by 23 percent
to 17 million tons by 2010 from 22 million tons.

"There's no substitute for manganese, which is indispensable to add
solidity and purity to steel," said Yasuhiko Tamakoshi, director of
Chuo Denki Kogyo, a supplier of materials to Sumitomo Metal Industries
Ltd. "As the only possible replacement, nickel is always more
expensive." Crude steel uses 8 to 10 kilograms of manganese per ton,
he said.

"Manganese prices are fueled purely by a physical shortage, not
speculative money, and they will probably extend gains next year,"
Tamakoshi said in a phone interview yesterday.

Japan's import price for ferro-manganese, another alloy used to
strengthen steel, rose 46 percent to 141,792 yen per ton in the past
year, Japan's finance ministry said.

"Panic buying by steelmakers has pushed up prices," said Hideo
Uchiyama, a marketing official at JFE Holdings unit Mizushima
Ferroalloy Co., in an interview.