The text below is an edited version of an Insight originally published on CRU Online, dated 15 April 2026. For the full version, contact us here.
CRU has launched a new weekly Chinese SiMn price differential assessment to provide greater visibility into the country’s alloy market. The assessment tracks the differential between the price of SiMn transactions (conducted among market participants and futures companies) and the price of SiMn futures contracts listed on the Zhengzhou Commodity Exchange (ZCE). It offers a new layer of insight into the relationship between the physical and futures markets.
This comes as participation in SiMn futures has grown significantly in China. The practice offers producers a tool to lock in profits and sustain operations, while buyers can hedge against cost increases. However, this has also contributed to a substantial build-up in supply, which is set to weigh on alloy prices against a backdrop of weakening demand.
Why futures hedging is on the rise
China’s manganese alloy producers are heavily exposed to price fluctuations in seaborne manganese ore. In an industry often suffering from excess capacity and low margins, this volatility poses a significant risk.
The introduction of SiMn futures has provided a vital platform for producers to manage this risk. Our analysis shows that participation in futures trading surges during periods of high price volatility. For example, when a major Australian manganese ore mine was unexpectedly shut down by a cyclone in 2024, the resulting price uncertainty drove a spike in futures activity as market players rushed to hedge their physical exposure.
How 'basis trading' is changing the market
A popular approach known as 'basis trading' has emerged, integrating the spot and futures markets. This involves producers selling their output in advance on the futures market to protect against falling spot prices, or buyers purchasing futures to guard against price spikes.
This process is often facilitated by specialist intermediaries – physical-futures companies – which have expertise in both physical trading and derivatives. They manage the complexities of hedging, allowing alloy smelters and steel mills to lock in profits and costs. The 'basis' is the agreed price differential between the physical contract price and the futures price, which is fixed when a contract is signed.
The consequences for supply and prices
This new way of trading has several advantages, offering smelters improved cash flow and steel mills greater price certainty. However, it has also had a significant impact on market dynamics.
Our latest market view indicated that alloy prices would decline due to lower steel production estimates. While prices did fall, the expected production cutbacks from smelters were delayed. We believe basis trading was a key reason, as it allowed smelters to secure better profits than were available in the spot market. This has led to a vast accumulation of stock in the supply chain, which will eventually lead to a price collapse unless production is curtailed.
CRU will continue to monitor the development of the futures market in China. Our new price differential assessment is designed to bring clarity to these evolving dynamics. If you want to discuss this topic further, reach out to us here.
