|2Q16 was characterised by an extremely tight market. Many producers had shut down operations globally, including four furnaces in South Africa going bankrupt over the past 8 months. This resulted in the remaining producers selling only on a contractual basis, leaving very minimal stocks available to the spot market for both chrome ore and ferrochrome. As such benchmark prices settled at 98c/lb, representing an increase of 19.52% from the second quarter.
Going forward, a number of producers in China have restarted their furnaces and the third quarter is generally characterised by increased availability of chrome ore as South African producers tend to slow down production during the winter period and Eskom’s winter tariffs. As such, we do not expect this price increase to be sustained and are forecasting that 4Q16 benchmark prices will settle at 96c/lb. Stainless steel mills in China have lowered bid prices for July and August delivery and the most recent ferrochrome trade to China that was reported to Core Consultants cleared at 71c/lb, CIF on the 10th of July.
Stainless steel production in 2Q16 is estimated at 10.4m tonnes, unchanged from 1Q16. Chinese producers produced around 5.3m tonnes, slightly up from 5.2m tonnes produced in 1Q16. Indian production remained more or less stable at 890,000 tonnes, compared to 850,000 tonnes in 1Q16. We have maintained our forecast for Chinese stainless steel production in 2016 at 20.67m tonnes, down from 21.56m tonnes in 2015. Total stainless steel production for the year is estimated at 41.39m tonnes, compared to 41.57m tonnes in 2015.
Based on our view of stainless steel output, we expect that ferrochrome consumption will total 10.7m tonnes in 2016, unchanged from 2015. This is against ferrochrome output of 10.3m tonnes and as such we expect that the market will be in deficit in 2016. Despite this, poor macroeconomic fundamentals and relatively high stainless steel stocks in China are expected to constrain price gains.