Stainless steel production in 3Q14 fell to 10.49m tonnes compared to 10.8m tonnes in 2Q14. The main reason for the lower output was due to the European summer which resulted in European production falling from 2.11m tonnes in 2Q14 to 1.78m tonnes in 3Q14. The European stainless steel industry is still pursuing plant closures in order to rebalance capacity in the region and as such utilisation rates are expected to increase to around 90% by 2016. Chinese production also fell slightly to 5.38m tonnes from 5.6m tonnes in 2Q14.
With respect to benchmark negotiations, 4Q14 negotiations were settled early on the 24th of September at 115c/lb, down from 119c/lb in the third quarter. This settlement was lower than we anticipated, mainly due to curtailments in Europe, the weak rand: dollar exchange rate which negated the need for ferrochrome price increases and expected market surplus in the fourth quarter as South African ferrochrome producers return to full production capacity following the winter period. We are forecasting 1Q15 prices to increase marginally at 118c/lb with moderate gains expected over the next two years.
We maintain our view of a persistent global surplus of ferrochrome over the medium term. This is driven by increased capacity additions and a slowdown in stainless steel capacity additions. China expects to realise over 1m tonnes of additional smelting capacity by 2015 which threatens the global market balance, but the pace of these additions are expected to decline over the next four years.
With respect to chrome ore, platinum producers have indicated that bi-products including UG2 chrome ore enable them to offset around 20% of their production costs. As such we expect that over the next six months, UG2 chrome ore exports will increase. As wage negotiations have been settled for two years, we expect chrome exports to continue without interruption. As China continues to become more self-sufficient with respect to ferrochrome production, it is expected that it will become more challenging to negotiate higher ferrochrome prices.
This summary was extracted from Core Consulants’ Trends in the Ferrochrome and Stainless Steel Market. Click here to order the report.