Bad things come in two’s

The current economic situation continues to affect the FeCr market. This is a combination of oversupply of chromium ore, outbreak consequences, and global financial markets volatility massive risk-off.

Even before the latest negative factors came onto play this year, the Cr industry situation in 2019 was already adverse. Recently RSA announced that its GDP contracted by 1.4% in Q4, but the drop in ferrochrome business, in the country which represents 30% of global production, was much more significant. The four ferrochrome producers, who kept operations in 2019 reported:

  • Large producer:
    – The ferroalloys segment registered a 22% drop in revenue in 2019 compared to 2018
  • Large producer:
    – Does not publish official numbers, but Hanwa (20% stake holder) is expected to have a loss of USD 59 million from their chrome operations
  • Smaller producer:
    – The ferroalloys segment registered a 25% drop in revenue in 2019 vs 2018. The company reported a loss of EUR 60 million, compared to yesterday’s close market cap at slightly below EUR 72 million.
  • Smaller producer:
    – Reported a 1,3-billion-rand loss, roughly equaling to 87 million USD.

Year on year the European Quarterly Benchmark has dropped by 16%. Despite being a substantial decrease, it is significantly less than the revenue drops listed above. The latest information from the above-mentioned companies indicates large drops in revenue for each of them as well as cuts in production. Thus, in the short-term FeCr production in RSA will continue to decrease.

On the positive side, ongoing introduction of various stimulus packages could help and enhance demand for raw materials and metals sooner or later. Central banks in China, USA,UK and the EU have already made decisions and more help is expected.

People's Bank of China is expected to cut reserve requirement ratio by 50 to 100 points, which could free from 300 ($43.18 billion USD) to 700 billion Yuan ($100.75 billion USD) in liquidity for the companies that have been impacted by the epidemic.

The U.S Federal Reserve cut the interest rate by half a percent last week down to 1-1.25%. The last time the rate was this low was in June of 2017. Further rate cut is expected soon.

An interesting comparison between a few major commodities prices in June 2017 and now:

  • Brent: 47.92 USD/barrel, currently 33.72 USD/barrel
  • LME Ni: 8924 USD/t, currently 11830 USD/t
  • Iron Ore: 64.80 USD/t, currently 90.15 USD/t

To chrome related products such as:

  • EU Ferrochrome Quarterly Benchmark: 1.54 USD/lb, currently 1.01 USD/lb
  • HC FeCr spot Europe: 1.20 USD/lb, currently 0.89 USD/lb
  • LC FeCr spot Europe: 1.98 USD/lb, currently 1.77 USD/lb
  • UG2 Cr ore CIF China: 170 USD/t, currently 127 USD/t

Each commodity has its own fundamentals; however, it looks like there is some potential upside for the chromium related products.

China recently reported record levels of steel stocks, but market sources indicate plans by the government to provide additional financing to large infrastructure projects, such as bridges, railroads and airports, hence consuming the current steel surplus. That in turn should provide a boost for additional steel production and FeCr demand.

The latest exports/imports data shows severe drop in exports from China (17.2%), while imports decreased marginally (4%). Among imported goods, copper poised a 7.2% increase. It remains to be seen how this will affect ferrochrome supply/demand balance domestically in China , but market analysts believe imports should get in line with exports in the short-term.

This week global markets were hit by crash in oil prices, with financial markets recording huge daily drops since the financial crisis of 2008. The uncertainty about market direction and possible longevity of the crisis could continue weighing on the metal markets recovery.

The above factors show that in 2020 there is a possibility of FeCr shortage, but when it will happen depends on how fast the stimulus packages improve the economic outlook and how RSA FeCr producers deal with the current market downturn. Fundamentals are still in place. But new risks are tough, thus the road to recovery for the ferrochrome industry will be longer than anticipated in January.

*Sources: Link 1, Link 2, Link 3, Link 4

Ferrochrome and viral outbreak in China — what’s ahead?

Over the last few days TSS, TISCO and Baosteel announced their Bidding price rollover for February:

  • TSS price stands at 5797 RMB/t, in US denomination this equals to 66.69 cents per lb of Cr
  • TISCO price stands at 5600 RMB/t, in US denomination this equals to 64.26 cents per lb of Cr
  • Baosteel price stands at 5800 RMB/t, in US denomination this equals to 66.56 cents per lb of Cr

The full impact from the latest developments in China related to the current virus outbreak on both supply and demand side is still unknown.

  • According to SMM, stainless-steel production in China in January decreased by 13.06%, while other market sources mention 17% drop from the previous month but being 4.8% higher based on year to year data. Further decrease of production is expected in February.
  • Additionally, last week SMM reported an estimated 47,000 mt drop in ferrochrome production for February compared to January (roughly a 10% decrease), because of shipment curbs caused by the quarantine.
  • The final import statistics for HC ferrochrome and chromium ore will largely depend on the domestic supply and demand situation in China. Though ferrochrome imports might increase short-term due to decrease in domestic production in China, imports of chromium ore will most likely decrease due to decline in demand.

*No Cr products are included on this graph, but according to ICDA data, China accounts for 57% of FeCr consumption and 42% for Cr ore. While importing 37% of total seaborne FeCr and 84% of total seaborne Cr ore.

  • Also, People’s Bank of China (PBOC) has taken another step to help banks and borrowers endure the economic disruption from the coronavirus outbreak by lowering the one-year rate from 3.25% to 3.15%. This will help offset some of the losses the companies are enduring and most likely insure a faster return to full operations. PBOC also pumped in 1.7 trillion yuan ($242.74 billion) through open market operations over the last few weeks.

News coming from China are volatile for the ferrochrome and stainless-steel industries. Taking that into account, stainless-steel mills’ decision to rollover the Bidding price seems to be a sensible one. The supply/demand balance for the global ferrochrome market will largely depend on whether China’s imports of ferrochrome will go up or down. In turn, demand for imported ferrochrome will depend on the balance between domestic production cuts and demand from stainless-steel mills. Import of chromium ore should decrease due to the drop in consumption inside China. At the same time, supply of materials such as refined ferrochrome, EMM and FeSi to the global market, where China has a substantial market share, will likely decrease. Global stainless-steel exports also should decrease, including the ones to Europe. If this becomes a significant occurrence, Europe will require additional production of stainless-steel and raw materials used for its production.

Going short or going long?

During the last week of 2019, major Stainless-steel mills in China have announced their bidding prices and as anticipated before these prices decreased:

  • Tsingshan lowered its bidding price by 200 RMB, settling at 5797 RMB/t, while in USD denomination this equals to 0.66 USD/lb
  • Baosteel lowered its bidding price by 200 RMB, settling at 5800 RMB/t, while in USD denomination this equals to 0.66 USD/lb
  • TISCO switched back to monthly pricing and lowered its price by 900 RMB/t (in line with our expectations), to 5600 RMB/t (roughly 0.64 USD/lb), returning to pricing parity with Tsingshan and Baosteel.

Right before the New Year holidays, Merafe Resources announced the European Benchmark at 1.01 USD/lb, a decrease of 1 cent or 1%.

One can see that despite the currently depressed market, the Benchmark decrease was much lower than the decrease of the China Bidding Price (1% vs 10%). In our view, there are a couple of reasons that affected both prices.

  • China currently has an ample supply of material, both domestic and imported. With chromium ore prices being at the lowest level, stainless mills can drive down the Bidding Price for ferrochrome, while simultaneously decreasing imported prices.
  • While negotiations for the European Benchmark most likely used improvement in spot sales of ferrochrome in Europe to justify the small decrease - from Q3 to Q4 the price in Europe increased by 5%. Despite that we see that this recovery is based on shift in supplier’s strategy, namely, while the European prices were decreasing, suppliers shifted cargoes to China, thus decreasing the oversupply.
  • Additionally, new production cuts in South Africa, Zimbabwe and India might be announced, hence keeping the supply/demand balance in shape.

The Benchmark announcement also continues the latest trend in reestablishing itself as the leading market indicator. As addressed in June of 2018, in past few years prior to 2019, the European Benchmark settlement was heavily influenced by Bidding Prices in China, following their changes with a quarterly lag.

Quarterly change normalized to Q1 2015, with Q1 2020 Bidding Price corresponding to January announcements

Contrary to that, in 2019, the Benchmark settlement seems to be more focused on supply/demand outlook and taking into account actual and possible production cuts ex-China. Also, the above graph illustrates that the annual volatility for European benchmark and bidding price is steadily decreasing, which seems to be a good development.

With two globally relevant indexes European Benchmark and Chinese Bidding Prices going in different directions, it remains to be seen which way the market will move during Q1 and in Q2. Whether new possible production cuts help to balance ferrochrome supply/demand, and move the prices to more suitable levels? How much will the latest geopolitical news affect ferrochrome and stainless-steel supply/demand balance?
In general, most of the forecasts by major investment institutions are optimistic for commodities in 2020, despite several obvious risks. Hopefully, these positive expectations will materialize for Cr related industries.

Standing at a roundabout

Recently, major Stainless-steel mills in China have announced their bidding prices:

  • Both Baosteel and Tsingshan decreased their prices by approximately 400 RMB/t, settling at 6,000 and 5,997 RMB/t respectively
  • TISCO on the other hand, continues to keep its Bidding Price at 6,500 RMB/t due to its switch to quarterly pricing, remaining the premium buyer
  • In USD denomination, bidding price for Baosteel and Tsingshan stands at 0.68 USD/lb. While TISCO’s price, announced in October, at the current exchange rate stands at 0.74 USD/lb.

Whether TISCO decides to switch back to monthly pricing or continues with quarterly pricing, next bidding price announcement from TISCO might be very drastic. Because for TISCO to return to the historical pricing parity with Baosteel and Tsingshan (being about 200 RMB/t lower), TISCO will have to slash the January price by almost 800 RMB/t.

We expect bidding prices in China to take another drop in January, mainly due to ongoing market issues:

  • Stocks of chromium ore continue to rise in China, while chromium prices are still at very low levels
  • Trade negotiations between US and China are still ongoing, but with no certain date for signing and no clear understanding of what comes afterwards
  • Global economic slowdown, especially in the main chromium consuming industries, such as automotive
  • Ongoing currency devaluation against the US dollar in major ferrochrome producing countries, which in turn puts more pressure on the Cr and FeCr global market price, which is traditionally set in USD

Bolivar cannot carry double

Over the month of October, the ferrochrome industry was puzzled by disaccord in bidding prices and terms from major consumers in China.

  • TISCO was the first to announce their bidding price for October with a sharp increase of 400RMB and changing the term of validity from one month to a quarter. This could be a good step towards more stability and transparency for the market.

  • Yet neither Baosteel, nor Tsinghsan have followed this move and they only announced their prices for the month of October and neither of them in line with TISCO, nor between each other with 200 and 100 RMB increase respectively. This made it the first time in recent history that those two prices were lower than TISCO’s price, which was usually 150-200 RMB lower due to its logistic cost advantage to domestic ferrochrome producers in the Shangxi region.

  • We expected this Bidding Price increase to happen in September, but the stainless-steel mills in China either rolled the prices over or increased it marginally.

  • This has been followed by November Bidding Price adjustment in which Baosteel fell in line with TSS (a decrease by 100 RMB/t), while the difference between TISCO and seaborne consumers persists and even slightly increased.

  • December will show where the quarter will end for seaborn consumers and what adjustment TISCO will apply for Jan 2020. It will also be a good basis to compare with EU Benchmark move for Q1 2020.

  • Despite continuing swings in the Bidding Price, the USD denominated price remained stable, due to ongoing volatility of the yuan. We estimated the average Bidding Price for October and November to be around 0.73 USD/lb.

  • Decrease in the November Bidding Price comes as a surprise considering recent stainless-steel news from China. According to data from Special Steel Enterprises Association of China the stainless-steel production in the first nine months of 2019 stood at 22.49 million tonnes. That’s an increase of 10.5% year on year, while consumption increased by 11.64% to 18.53 million tonnes.


  • The European Benchmark for the 4th quarter has been announced at 1.02 USD/lb, down only 2 cents from the previous quarter. We see it as an indicator that 4th quarter price for ferrochrome ex-China will recover and the current oversupply should dwindle by the end of the year.
  • Despite some improvements in ferrochrome prices around the globe, ex-China production continues to fall, with MERAFE recently announcing 29% drop in production for the latest quarter.
  • With the recent ruling by the WTO, United States announced duties on European goods worth around USD 7.5 billion. So far ferroalloys are not included in the list of those goods, but due to carousel option, it remains a possibility in the future.


Today major ferrochrome industry participants gather for ICDA’s 35th anniversary meeting in New Delhi, India. We do hope that this meeting will aid the industry in moving smoothly and sustainably towards a brighter future.

Here are some interesting topics Unichrome recently discussed with Fastmarkets.

We will definitely have even more things to discuss and news to share during the upcoming International Ferroalloys Conference in Budapest on November 17th–19th 2019.

Lost in… conversion

With the summer end, slowdown is starting to ease up. Despite positive market news such as nickel price surge (around 32% since the beginning of July), the overall sentiment of the market is cautious and calculated due to still ongoing risks such as low demand, slowing EU economy, ongoing trade wars.
Last month, major stainless-steel mills in China (Baosteel, TISCO and Tsingshan) have released their tender prices for July. The corresponding drops were: 450 RMB/t, 500 RMB/t, 450 RMB/t respectively, making average July tender price 6215 RMB/t (roughly equaling 0.73 USD/lb).

This drop was more than originally anticipated, but with the oversupply of ferrochrome, large stocks and seasonal business slowdown, the steel mills were able to drive the prices down.

For August the stainless-steel mills rolled the Tender price over, that announcement arrived on the hills of production results for stainless steel in China in H1 2019. According to the Chinese Stainless-Steel Council the output increased by 8.5% in H1 to 14.35 million tonnes. This shows that demand for ferrochrome is still there, but price recovery might take a long time due to increased ferrochrome availability (which is at the highest level since 2017).

As one can see from the graph below, current prices are reaching a level that is close to break-even point for ferrochrome producers and the gap between European spot prices and Chinese domestic prices is at its lowest levels since Q1 2013. With Chinese domestic prices stabilizing, European prices should start a recovery, because soon some of the producers might begin diverting more tonnages to China.

Due to significant drop in ferrochrome prices, Hernic Ferrochrome is currently shutdown and is rumored to be prepared for scraping, Glencore/Merafe, Yildirim Group have announced production cuts, Afarak also stopped production due to maintenance and according to market sources Samancor is operating at 50% capacity. On the opposite side ferrochrome production in China continues to rise and ERG Group has also announced production increase.

Despite the price rollover for China Tender from July to August, the Tender Price in USD decreased due to Yuan devaluation. Lately the Chinese yuan has softened compared to USD as a response to new import duties for Chinese products in the United States.

Since the last change in Tender Price (July tender), yuan dropped 5% relative to USD, while chrome ore price increased by 10% in dollar terms. This should provide pricing boost for the upcoming September Tender, since cost of raw materials has increased in RMB. That means that even 5% increase in Tender Price in RMB would not be enough to compensate the producers for raw material price increase. At the same time, demand ex-China is still slow.

The yuan adds a new dimension to the currency risk, now combined with increased volatility of the South African rand, Turkish lira and Russian ruble.

September will show if recent rally in Nickel prices will boost stainless steel and FeCr demand towards Q4.

European Benchmark Q3 2019

Last week Merafe released Q3 2019 European Benchmark, which now stands at 1.04 USD/lb, a drop of 13% from 1.20 USD/lb in Q2.

Despite a big drop, it falls in line with the current decrease in CIF Shanghai, one of the main indicators of the price movement.
From the graph below, one can see that historically CIF Shanghai represents 72% of value of the Benchmark price. New benchmark of 1.04 USD/lb, corresponds to 0.75USD/lb for CIF Shanghai, the exact level market is reporting.
The current level can be considered a pricing bottom, with the production costs being either at the level of below current prices.

South African consolidation

As discussed before, South African ferrochrome industry underwent a significant transformation. That is still ongoing, with a change of ownership in Samancor.

That creates a possibility of Samancor’s charge chrome production being supplied mainly to China, thus leaving Glencore/Merafe as the only charge chrome producer in South Africa (Afarak is currently in turmoil, and it remains to be seen if it recovers).

This development in the long term might generate a shortage of charge chrome in the ex-China markets, which in turn might support European Benchmark levels and improve high carbon ferrochrome prices.

No easy way out

TISCO and Tsingshan just announced their June Tender Prices, the drop of 350 RMB/t (6550 RMB/t and 6746 RMB/t respectively). This moves Tender prices to lowest level since May 2018. The most likely scenario for Q3 European Benchmark now is to return to the level of Q1, but there is a possibility that the drop can be even wider, since Q3 is generally one of the slowest times of the year.

Some factors that attribute to the current downturn in prices:

  • Surplus of ferrochrome on the global market

  • China leads the oversupply, thus driving the demand for imported material down

  • New stimulus package in China has limited effect on the market and demand

  • Risk to supply side didn’t not last long, especially with price improvements in March and April

  • New turn in USA/China trade war, creates uncertainty for stainless steel and ferrochrome producers

  • US steel market is slowing down for first time since 2017

  • EU is also not doing well, especially the automotive industry

On the other hand, there are factors that might help improve the market, both short and long term and also support market in Q3:

  • Most of supply curve is underwater and shutdowns in FeCr are starting in China as well.

  • Following consolidation in RSA, last big deal will leave world ex-China with virtually one producer of ChCr as rest might be diverted to China in the future. To manage these risks consumers might increase the security stocks targets for the ChCr.

  • if restocking will start this will inincrease demand for HC FeCr

The current situation once again shows how dysfunctional market is. Domestic prices in China becoming more and more influential around the globe, but that doesn’t solve the liquidity and no-hedging issues, as well as a lack accounting for supply/demand fundamentals of different parts of the world.

How big is the fish?

China Tender Price increase for April 2019

As anticipated earlier, April bidding prices were announced at 300 rmb/mt above March level yesterday.

Although it is reported marginal in some newsletters, in fact this is a 4% increase in price including VAT, meaning a 7.1% increase of actual price ex VAT, which is quite significant for one month upside. This is the biggest hike since July 2018 and also equals to the resent price increase in European Benchmark.

This increase is mainly pushed by various factors from the supply side, still remains to be seen if it will continue in April depending on where the demand will be.

A Step towards the Right Direction

The Q2 2019 European Benchmark has just been settled at 1.20 USD/lb, an increase of 7.1%. The announcement came ahead of Chinese ferrochrome bidding prices for April, thus making the European Benchmark the leading indicator for the ferrochrome market this time.

Some market participants see this increase being on the high side, while we think it’s on the low side or rather moderate, giving today’s market conditions:

  • Continuous load shedding in South Africa has led to a ferrochrome production decrease by 20%

  • UG2 chromium ore price has increased since the beginning of the year by 20%

  • CIF China price has increased by 5%

  • China Tender Prices increased by 1%, pending a bigger increase in a few days

  • China spot ferrochrome prices increased by 7%

  • One more important change is a VAT decrease in China from 16% to 13%. This means from now on actual price ex-VAT should be adjusted by 3% up, compared to previous domestic price, which is always indicated including VAT.

In other words, a 7% increase in spot price, including VAT, is an equivalent of a 10% increase ex-VAT or CIF. Thus, one can see that the Benchmark increase in Q2 was not very drastic, but in line with other price hikes on the low side.

What remains to be seen is a bidding price increase in April, which is expected to be around 300 RMB/t, taking into account the above consideration of 3% VAT adjustment. Let’s see, if it will be enough to cover increased COP in China and apparent ferrochrome shortage from imports, or more increase will be expected for May.

Up From the Bottom

Recently, major stainless-steel mills in China have announced their ferrochrome bidding prices for March deliveries.

Just like in October, TISCO was the first mill to release the price, possibly to seize the market and hedge itself from sudden price surges. TISCO rolled the price over at 6,650 RMB/t On the other hand, this time Baosteel and Tsingshan increased their bidding price by 100 RMB to 7,000 RMB/t and 6,996 RMB/t respectively.

As the matter of fact, in case of TISCO there are some differences in fundamentals of ferrochrome bidding price:

  • TISCO is located close to Inner Mongolia, the main ferrochrome producing province, thus it has access to more supply at a lower logistics cost
  • Some of TISCO’s production capacity is still under maintenance, so its purchase requirements have decreased.

Even though 100 RMB/t is a slight increase, it is positive news for the market as it moved the prices close to 7,000 RMB/t.

It is probably the case that article, 7,000 RMB/t should be considered as a Chinese domestic ferrochrome industry support level. Both Baosteel and Tsingshan have returned to that level after 3 months. Some of the reasons for increase in bidding prices in China are as follows:

  • China and USA negotiations on trade are progressing and easing the fear of full-scale trade war
  • That has improved outlook for stainless steel in China and worldwide
  • Spot prices in China are increasing after Lunar holiday
  • Cr ore prices are picking up, with recent news of production problems in South Africa.

Over the past years some of the ferrochrome market participants suggested that international ferrochrome prices should be based on the Chinese domestic market data like bidding price and CIF Shanghai, which are more or less following bidding price in USD terms. Although market in China became an important part of the global ferrochrome industry, it still has too many specific local matters, like export duty regulations, ecological regulations and RMB exchange rate exposure. To apply the abovementioned indexes directly to contractual formulas ex China, will significantly strengthen its natural influence onto global markets outside of China and will be misleading and risky from both consumers and producers sides.

Recently some news surfaced that Inner Mongolia is going to have power shortage, which will affect production in March and April. Some industry players believe that it won’t be a big issue, since environmental shutdowns didn’t have a major affect on the production in China. On the opposite side, some market participants believe that this might lead to a shortage of ferrochrome, at least in a short-term prospect.

The situation in Inner Mongolia shows some resemblance to the issues of Eskom in South Africa. The ferrochrome industry was set up in RSA because of raw material availability and cheap electricity. The similar principle was applied in establishing ferrochrome producing hub in Inner Mongolia, i.e. cheap electricity. The recent development illustrates that this principle might not be sustainable in a long-term outlook.

In the second half of 2018, prices in the rest of world balanced to parity with Chinese domestic prices (without delivery and duty expenses). Thus, the current price increase in China will provide support for price improvements globally.

Truck tire will not fix town car broken wheel

Recently some of the ferrochrome market participants suggested that international ferrochrome prices should be based on the Chinese Tender Prices.

Over the last couple of years, the bidding price in China has become an important part for the global FeCr industry and markets started to follow each other and correlate. Despite that, using domestic prices in China for LT formula commitments could create difficulties for both suppliers and consumers, since the rest of the world will be exposed to China domestic FeCr market pricing, which is influenced by some country specific factors:

  • Currently it is disadvantageous for Chinese ferrochrome producers to export, due to export duty and nonrefundable VAT. If these duties are eliminated, the teneder price will immediately increase, since Chinese domestic producers will be more competitive on the international market, thus putting more pressure on the overseas prices and vice versa.
  • Secondly the Tender Price in China generally closely follows domestic FeCr COP, which is a function of Cr ore import price to China. That price in turn is not directly related to integrated FeCr COP of international suppliers. If export duty is implemented on Cr ore from the supplying country, the Chinese domestic FeCr COP will immediate increase, thus driving Tender Price higher. While on the other hand the supplying country will have domestic COP decrease with the support of export duty.
  • Third is ongoing issue with environmental shutdowns in China, which affect both the stainless steel and the ferrochrome industry. Now any environmental regulations will have an immediate affect on the global market directly, rather than a steady discovery of whether additional or new shutdowns will be effective.

Above three factors are most evident ones why this will only make the pricing system even worse than today. On top there are some more like unknown number of bidders, not always disclosed volumes of bidding, different seasonality and other specific domestic issues. The bidding price is relevant for the world market but straightforward usage outside Its own region is not a solution and will create a lot of additional risks for the industry.

All in all, the recent development is another evidence that FeCr market is in a desperate need of liquid pier to pier settlement mechanism with financial responsibility of participants, pricing transparency and possibility of hedging, similar to what exist in exchange traded products.

Jan 2016 to Jan 2017: MB HC growth of 78%, China Tender growth of 109%
Jan 2017 to Jan 2018: MB HC decrease of 9%, China Tender decrease of 30%
Jan 2018 to Jan 2019: MB HC decrease of 24%, China Tender decrease of 6%
Jan 2016 to Jan 2019: MB HC growth of 23%, China Tender growth of 39%

Q1 2016 to Q1 2017: EU Benchmark growth of 79%, China Tender growth of 101%
Q1 2017 to Q1 2018: EU Benchmark decrease of 28%, China Tender decrease of 21%
Q1 2018 to Q1 2019: EU Benchmark decrease of 5%, China Tender decrease of 11%
Q1 2016 to Q1 2019: EU Benchmark growth of 22%, China Tender growth of 42%

Mouse or Elephant — looking forward to Q1 2019

The end of December is approaching, and the ferrochrome industry is preparing for the Q1 European Benchmark announcement.

With the current price downturn in all the major markets, it seems reasonable that the benchmark price will go down, the question is by how much?

There are three major prices whose dynamics should be considered in European Benchmark settlement: China Tender Price, CIF Shanghai and MB HC FeCr.

We used all the above prices to calculate different scenarios for possible Q1 2019 European Benchmark.

We used Q4 vs Q3 price change and applied the corresponding drop to Q4 Benchmark

EU Benchmark vs China Tender

Benchmark Scenario: BM equals 1.20 USD/lb based on the percentage drop between Q3 and Q4 Tender Prices
Q1 2019 average Tender Price forecast 7000 RMB/t.

EU Benchmark vs CIF Shanghai

Benchmark Scenario: BM equals 1.18 USD/lb based on the percentage drop between Q3 and Q4 CIF Shanghai
Q1 2019 average CIF Shanghai forecast 0.8 USD/lb

EU Benchmark vs EU MB HC

Benchmark Scenario: BM equals 1.03 USD/lb based on the percentage drop between Q3 and Q4 EU MB HC FeCr prices
Q1 2019 average EU MB HC FeCr forecast 1.05 USD/lb

A big difference between EU MB HC FeCr and the other two prices is attributed to decreased premiums in the European market for HC FeCr compared to Charge Chrome. This is mainly due to increased competition in Europe.

A wide gap between prices of different indices for same product-ferrochrome, indicates ineffectiveness of the pricing mechanism.

Above analysis has a wide range of potential results from 1.03 to 1.20 and the average from three scenarios comes to 1.14 USD/lb. This might be a reasonable level, given the market situation and winter slowdown for the industry. The level also corresponds well for CIF Shanghai and Benchmark average historical spread.

EU Benchmark vs CIF China South African HC FeCr

The average quarterly difference from 2015 till now is 0.35 USD/lb. Based on above forecast for Q1 2019, the difference comes to 0.34 USD/lb, which in line with the historical data.

Trade war pause

Ongoing trade negotiations between USA and China are decreasing the risk of full-out trade war. The temporary stop on further increases in import duties are improving the sentiment for the international trade. This sentiment could help to improve ferrochrome prices in Q1 2019.

Bloomberg reported that China will decrease or even eliminated its import duties on the US made cars This will give a boost to US car manufactures in the world’s largest consumer market. As the result the US domestic car production should increase thus increasing demand for stainless steel products. That in turn should even further improve USA demand for ferrochrome and ferroalloys. From the other hand improved demand might attract even more pressure from supply side as it has already happened in the second half of 2018.

FeCr Supply Factors Overview November, 2018

1. ESKOM has been in denial about coal cliff

  • ESKOM is now running short on the coal stocks at the major powerplants. According to South African news sources and, some of the plants have around 10 days of stockpiles, while the minimum required is at least 20 days. ESKOM has warned that the possibility of nationwide power outages is increasing.
  • This problem continues to undermine governments attempts to attract more foreign investments in the country. Since such uncertainty most likely will push investors in the opposite direction.
  • This issue is growing on the weekly basis and continues to create major obstacle for the ferrochrome industry. Without stable supply of electricity, possible power shedding and outages, the industry most likely will continue to shrink at least for a short-term.
  • As the result, that might increase production and shipments of chromium ore, since its production is less electricity demanding.
  • To be a building block for the economy and the ferrochrome industry ESKOM will need to address the main problems and implement fundamental changes to solve them.

2. High-carbon Ferrochrome capacity release Chinese provinces in November 2018 (source:

  • Guizhou November output is expected to be around 27,900 tonnes, which represents 34% of the total monthly capacity. The drop from October is around 2%.
  • Sichuan November output is expected to be around 33,000 tonnes, which represents 24% of the total monthly capacity. The drop from October is around 17%.
  • Hunan November output is expected to be around 13,000 tonnes, which represents 23% of the total monthly capacity. The drop from October is around 17%.
  • Northwest Region November output is expected to be around 21,200 tonnes, which represents 25% of the total monthly capacity. The increase from October is around 8%.
  • Shanxi November output is expected to be around 36,900 tonnes, which represents 40% of the total monthly capacity. The increase from October is around 2%.
  • There is no final output data for total Chinese ferrochrome production for November, but it is likely that the total output will decrease.
  • The obvious factors for the production slowdown are decrease in China tender prices for November, which put a lot of meltshops in a disadvantage due to high cost of production and ongoing environmental shutdowns.
  • Additionally, the above-mentioned provinces house a considerable amount of small ferrochrome meltshops. There is a chance that after environmental inspections some of them won’t return to the operations.

3. Despite decrease in ferrochrome production in South Africa and China it remains to be seen how the supply/demand balance will be affected. The question marks are the stainless-steel production further direction during slower winter months, environmental shutdowns in China and drop in stainless-steel prices on the background of various trade tensions concerns.

4. In these circumstances there are no good reasons for upward or downward movement for the ferrochrome market, unless one of the above factors starts to outweigh another.

Weekly Market Overview: October 22-26, 2018

Eskom wants to increase electricity prices by 15%

  • This is a continues issue that plagues South Africa, despite recent price hike, Eskom still wants to increase it, 15% annually for the next 3 years
  • Price hikes coupled with shortages of electricity and blackouts is one of the main reasons why big portion of South African ferrochrome capacity is either idled or operates at the low utilization rates
  • On the other hand, if NERSA (National Energy Regulator of South Africa) approves these price hikes, it most likely will force ferrochrome producers to hike their prices for both ore and FeCr

TISCO lowers HC FeCr bidding price for November 2018

  • TISCO was the first major stainless-steel mill to announce November prices, with the price being down 100 RMB/t (6750 RMB/t)
  • This price drop can be attributed to some domestic Chinese factors:

    1. The upcoming environmental measures most likely will affect both ferrochrome producers and consumers. It looks like TISCO believes that stainless steel mills will have to stop production on the larger scale, thus creating an oversupply of ferrochrome
    2. Secondly, TISCO itself is placing some of the production lines on repairs, thus decreasing its personal demand for ferrochrome
    3. Current supply is more than plenty, especially since TISCO mills are surrounded by ferrochrome producers

  • Most likely by the end of the next week other major stainless-steel mills will announce their bidding prices
  • After those prices are released, we will see of TISCO decided to seize the market opportunity by being the first to publish new price

Mouse or Elephant?

If you see a mouse under the inscription of an elephant, do not believe your eyes!

EU Benchmark vs CIF China South African FeCr price

The above graph represents one of the most puzzling aspects of the ferrochrome industry. The chart shows the gap between European Quarterly Benchmark and CIF China South African FeCr price. It is the same or similar material but the numbers represent the price indexes for two different markets. Needless to say that logistic cost difference is just a few cents and has nothing to do with the huge gap in numbers. While in the past the delta between the two markets was volatile, over the least two quarters it remains stable, on average a 50 cents difference.

Indeed, the existing pricing system does not reflect actual market reality. The same product might have a slightly different price, depending on geographical location and volumes, but such a difference illustrates how the existing system is misleading and that the global FeCr market requires something more reliable to measure actual supply and demand balance.

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