It stands to reason that if tear-away demand for iron ore and coking coal has returned, the same can be said for the third key raw material in steelmaking – manganese.

For every tonne of steel produced some 1600 kilograms of iron ore and 600 kilograms of coking coal are required. Manganese gets used towards the end of the steelmaking process and depending on a whole range of factors, there is no getting away from need to use somewhere between 7-9 kilograms of the stuff.

But the big players in the seaborne trade of manganese producers – BHP Billiton leads the pack – don't get to charge what they like as China, the world's biggest steel producer by a factor of five, is also a big producer of manganese.

The good news for western world producers is that much of China's manganese production comes from Ma and Pa-sized operations which produce low quality stuff. Safety has been a real issue, with many of the operations becoming just Ma operations. Beijing has also been cracking down on their environmental performance or more correctly, their lack of performance. The net impact of all that is that China's domestic production is on the skids, a situation reflected in the 27 per cent surge in Chinese imports of manganese in the 2009 financial year.

With the rebound in steel production around the globe and the decline in Chinese manganese production, manganese prices are on the march. Prices have about doubled from the lows seen during the global financial crisis and are now sitting north of $US6 a dry metric tonne unit (dmtu), up from an average for the 2009 financial year of $4.92 a dmtu.

Whether it gets back to more than $US15 a dmtu like it did for part of calendar 2008 remains to be seen. What is known is that there are few pure manganese plays around. Woodie Woodie manganese producer Consolidated Minerals got gobbled up in a $1.3 billion takeover by Ukrainian billionaire Gennadiy Bogolyubov a few years back.

That left ASX-listed OM Holdings's and its Bootu Creek operation in the Northern Territory as the only listed pure play in manganese. It's an $850 million company nowadays so is not on Garimpeiro's watchlist.

But there are a few lightly capitalised explorers out there hoping to break in to the industry, a move that would be welcomed by the world steel industry. Just like the situation in seaborne supplies in iron ore and coking coal, the steel industry is increasingly uncomfortable with the current vice-like grip the small field of manganese producers has on seaborne supplies.

Two explorers that have come to Garimpeiro's notice are Southern Hemisphere Mining and Encounter Resources. And as luck would have it, both are promising some action on the manganese front in the months ahead.

Southern Hemisphere

Southern Hemisphere is a $42 million company (41 cents a share) that came to the market in a secondary listing in January. It has got a twin focus of manganese and copper, both in rock and rolling Chile.

Its immediate focus is the Los Pumas manganese project in Chile's far north where it is fully funded on a project feasibility study. Keep an eye on the copper though as Garimpeiro suspects it could become more important over time.

The company is about due to release a revised resource estimate for Los Pumas which it intends to follow up with the completion of a definitive feasibility study in the third quarter of 2010. First shipments could occur in the second half of 2011.

Normally Garimpeiro would be dismissive of such an aggressive development timetable, remembering Southern will have to raise capital for the development of the project. But it has got Trevor Tennant as chairman and managing director.

He is one of the mining industry's can-do men. His history of building things when with Portman, OM Holdings and Territory Iron tell you that. Los Pumas is not going to be the biggest or best grade manganese show around. But as the Pilbara iron ore experience is showing, you don't have to have the biggest and best deposits to make decent money in the same patch as BHP Billiton. If anything, the leverage to boom commodities is enhanced.

Encounter Resources

Readers of Garimpeiro will know that Encounter Resources (23.5 cents a share for a market cap of $18 million) started out a few years back as a uranium explorer in Western Australia.

It's done all right too, having out together a resource base of some 11 million pounds of the radioactive stuff in WA's Yilgarn district. But it is no world beater and its most likely route to production is through the likely rationalisation of uranium deposits in the region for treatment through one central mill.

While that pans out, Encounter's near-term focus is on the manganese potential of its Yeneena project way up north in WA's Paterson province. Last quarter Encounter pulled in $3.5 million from a placement to fund a serious drilling program at Yeneena to follow-up last year's early encouragement that it might be on to something special.

The drilling program kicks off next month and could well be worth watching, such is the building interest in manganese as the third leg play behind iron ore and coking coal in the boom in demand for steelmaking raw materials.