Our June chrome market report details how the downward trend culminated in a significant drop in the ferrochrome benchmark price to 104c/lb from 120c/lb in the second quarter. The Chinese benchmark price is currently at 74-75c/lb for the third quarter from the previous 76-77c/lb.
The market was definitely impacted by the depreciation of the Yuan to the dollar, which now stands at around 6.90. However more than this, was the lower ferroalloybid prices from stainless-steel mills and relatively high stock levels. These stock levels are not expected to reduce as much of the inventory is deemed to be “trapped” as they were purchased when prices were high.
Chrome stocks too are relatively high, despite the lower import demand in both May and June. As such we expect that prices of chrome ore will continue to come down in July. South African 44% concentrates (bulk) averaged $160-165/tonne, down $15-20/tonne from May with all other regions following suit.
Chinese HC-Ferrochrome producers are still operating at a relatively high level, with June’s average rate of production at 68%. As such the market is expected to remain in oversupply during the remainder of the third quarter. Most mills have at least two months of ferrochrome stocks on hand so there is no need for restocking in the immediate term and prices are expected to remain subdued.
Based on our cost analysis, at these prices, many smelters are already unprofitable and the majority of profitable smelters are making margins of around RMB25-50/tonne ($3.6-7.2/tonne). Elsewhere producers have either idled furnaces of reduced production. Glencore guided the market down 50,000 tonnes, but admittedly this lower guidance has more to do with the ailing utility provider in South Africa and continued power outages rather than market forces. Other producers that have halted or reduced production include African Chrome fields, Afarak, Hernic and IDCOL.
Looking at the stainless-steel market, Europe’s economic depression has seen surcharges trend lower in July. Consumption in general remains lackluster, though some mills, particularly in Taiwan have opted to raise offer prices in order to mitigate the effects of exchange rate depreciation and higher nickel prices. China’s market showed an increase of stainless stocks in June, with the Foshan market rising 14% m.o.m. Mills attempted to cut prices at the end of May, but this move did not spark much buying interest, a further indication of the current market weakness.