Why are ASX magnesium miners getting so much love this week?

Magnesium shares are running hot as China pours water on potential for increased production…

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Lying dormant for years, ASX-listed magnesium miners are now springing to life amid concerns of a supply crisis.

Following on from a strong showing yesterday, these companies are rocketing again in early trade. This follows a joint call from multiple industries across Europe to address what could become a 'catastrophic' shortage of magnesium.

Let's take a look at the latest development.

No plans for China to ramp up production

As we previously covered, the sudden boom in interest for magnesium miners follows the fall in output of the alloy element from China. Unfortunately, the world has a substantial reliance on China's production of magnesium which accounts for 87% of the world's annual magnesium production.

With China's efforts to curb domestic power consumption, magnesium supply has dwindled. The side-effect is that Europe is believed to only have enough supply to last a few weeks.

The resulting ramifications could be extensive given that magnesium is a commonly used alloy in car parts, building products, and food packaging.

Despite the impending crunch, an article from China's Global Times, published last night, isn't promising for Europe's magnesium prospects.

According to the publication, China is inclined to rollout restrictions on magnesium operations in the future — regardless of whether there is an energy shortage or not. It seems that's sending ASX magnesium miners higher today.

Furthermore, many Chinese companies have resumed operations as normal since early October. However, magnesium miners have been instructed to operate at 40% of their normal capacity.

This is likely due to the material's extremely high energy intensity needed for production. It is estimated that it takes 35-40 megawatt-hours to produce one tonne of magnesium.

ASX magnesium miners today

It seems the shortfall in supply is unlikely to be filled by China following its remarks on magnesium production. As a result, investors are speculating that ASX magnesium miners could be set to benefit from an imbalance in supply and demand.

Here are today's big movers in the magnesium market:

  • Magontec Ltd (ASX: MGL) up 20.83% to 58 cents per share
  • Latrobe Magnesium Ltd (ASX: LMG) up 28.3% to 6.8 cents per share
  • Korab Resources Ltd (ASX: KOR) is in a trading halt pending an announcement regarding a capital raising

Korab Resources appears to be making use of the heightened interest in the sector. The $9 million company has touted a "shovel-ready" magnesium deposit near Darwin.

All eyes are on the ASX magnesium miners as to what the next move is from here.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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