Washington (Platts)--17Aug2012/541 pm EDT/2141 GMT

US magnesium prices may soon find some direction on the back of 2013 contract negotiations, but most players have little sense of the next move for prices following months of illiquid spot activity.

Most buyers appear to be in no hurry to book deals for 2013, though a few said that primary producers have reached out early to try to get talks started.

Primary producers have reported continued strong contracted volumes for 2012, but virtually no spot activity. One primary producer reported a single spot sale Friday -- the first in a couple of months -- at $2.25/lb, in warehouse, for delivery in late August.

"Demand remains strong in the US on contracted business. Stocks are low," the producer said.

One consumer said he believes magnesium supplies may be tightening up since he had seen some delays in getting contract shipments from US Magnesium. "They are definitely trying to push back deliveries -- I'm not sure if it's due to their capacity coming online or getting orders," the buyer said.

Cam Tissington, vice president of sales for US Magnesium, said there have been no disruptions or delays in magnesium shipments. "However, we are in a situation of declining inventories even though we are now up and running at our new nameplate capacity of 63,500 mt/year," he said.

"And as we've completed the expansion of our Rowley, Utah, facility, there have been production disruptions in our chlorine facilities that have reduced our liquid chlorine production for the merchant market," he added.

Another magnesium buyer said he did not think there was much magnesium available in the spot market. He also noted reports of more aluminum being used in the automotive sector, such as for the Ford F150, which would mean greater magnesium demand for aluminum alloys. However, he still believes spot pure magnesium prices are at $1.98-2.05/lb in the US.

An aluminum buyer reported paying $1.87/lb for primary pure magnesium early in August, and having also been quoted $2.00/lb by a primary producer. "We had three quotes right in the ballpark," the buyer said, noting the material was not off-spec.

Suppliers trying to sell at higher spot prices have said they think there is some old Russian stockpile or Dow magnesium circulating, but this could not be confirmed.

Traders said they have been unable to sell above $2 and several reported offering 99.8% magnesium at that level and missing on one other recent sale to an aluminum user. "I didn't hear exactly what it went for, but I don't believe it went below $1.95," a trader said earlier this week.

A trader reported a sale of 90/10 alloy in early August in the low $1.90s, but admitted that the buyer was "desperate, needed it that day."

Other diecasters and aluminum users said they were well covered with contracts and not buying any spot product. One diecaster who saw diecast alloy prices unchanged at around $2.00/lb said he would continue to buy on a quarterly basis. A secondary producer recently said $2.10-2.15 sounded like the right price range for spot diecast alloy.

One trader noted a pickup in business in early August, citing two spot inquiries for September-December for Canada. However, they were for small quantities, the trader said.

One of the buyers reported paying around $3,500/mt delivered Canada for 99.8% pure Chinese magnesium.

A trader who offered on the deal said with Chinese prices dropping at the time, he'd had to lower the FOB China basis from $3,300 to $3,250/mt but still did not win the business.

The buyer said some suppliers had raised their offers based on the general increase in Chinese prices prior to this month's price drop, but he said there were a "cluster" of offers at the level he paid.

Two US aluminum users said they had heard they should expect magnesium from South Korea's Posco to start flowing in 2013. And a debate between Posco's power provider and the city of Gangneung over whether power lines to the plant should be buried. The dispute has caused construction on the 10,000 mt/year primary plant in northeastern South Korea to stop, but the plant is 97% completed.

Aluminum users also said they had seen some Malaysian magnesium offered, but that Russian magnesium is unlikely to flow to the US given the expected price level. Another market source said aluminum plants in Brazil were "consuming a ton" of magnesium while European magnesium consumption is still down about 5-10%.

--Karen McBeth, karen_mcbeth@platts.com --Edited by Keiron Greenhalgh, keiron_greenhalgh@platts.com