Chrome And Ferrochrome Output Increases Impacting Prices

with 3 Comments

On the 19th of March, we published our Chrome & Ferrochrome Monthly Report. We note that that the benchmark for the second quarter has been set 11c/lb lower, but this did not come as a surprise, nor should it be cause for alarm.

From our perspective, the lower settlement was inevitable. Chrome ore stocks at Chinese ports were relatively high, climbing 900,000 tonnes between January and February. Furthermore, we discovered that in the latter half of 1Q17, top tier banks were not granting letters of credit and liquidity was therefore hard to come by. Furthermore, we understood that Chinese consumers were rejecting the contracted cargo, only to buy it from the ports on the spot market at reduced prices. These factors all played their part in lowering the benchmark price.

Going forward, we are expecting a slight increase in prices. While stocks of both stainless steel and chrome ore may be relatively high, stocks of ferrochrome at Chinese plants have halved. Furthermore, suppliers, especially from South Africa have been holding back material, unwilling to supply large quantities of either ore or alloys as the expectation is for prices to improve after April.

The third quarter in South Africa is generally a time of lower output volumes owing to the winter tariffs. As such, the fact that South African alloy suppliers are holding back material and the ensuing risk of more supply coming onto the market in the third quarter is mitigated. There is however some added material due to low silicomanganese and ferromanganese prices, which has resulted in a number of Asian furnaces switching over to ferrochrome where the margins are relatively higher.

India is currently able to produce ferrochrome at around $1.02/lb and is selling to China at $1.09-1.10/lb, thereby making healthy margins. So far we are seeing India taking market share with respect to Chinese imports, but we have not seen an increase in export volumes overall, nor have we seen much impact on the ferrochrome price. Indian producers are seen as the swing producers, increasing production of ferrochrome when margins ( and chrome ore availability) allow. If the year continues on this trajectory, we expect that around 900,000-1m tonnes of ferrochrome could come from India this year.

We do however caution that there may be some downside risk on the chrome ore side as the third quarter generally brings higher volumes. As mentioned, chrome ore stocks are high, but chrome ore suppliers in South Africa are planning to increase volumes this year and South African ferrochrome producers generally increase sales of chrome ore in the third quarter during the winter period.

On the demand side, orders of stainless steel has increased strongly in the first quarter of 2017. Lead times have expanded to around three months and in Europe, many distributors have reported that orders for long products are filled until July.

In Asia, the pace of growth in China may slow as Government is refusing to approve new domestic stainless steel applications for 2017, led by stricter environmental controls and excess capacity. For this reason we are seeing growth in the rest of Asia. For instaance, Tshinshan Group’s 1 mtpa mill was commissioned this quarter in Indonesia.

3 Responses

  1. Frank Davidson
    |

    HI
    Whats your view on Merafe share price based on future price and predicted volumes
    Regards Frank

    • Lara Smith
      |

      Hi Frank, thank you for your question. I notice that you are with FNB. We offer a monthly service to portfolio managers, hedge funds and bankers that helps guide them with their commodity investment decisions. Please be in touch if you want more information on this.

  2. Pravat
    |

    Hi

    How many tons Chrome ore Stock in South Africa last update?

Leave a Reply