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Ferrochrome Industry - In Search For Measures Of Regeneration (Part 1)
= Producers are badly-off despite growth in demand; No effective measures? =
The Q4 benchmark prices of South African charge chrome for Europe and Japan have both rolled over. Xstrata, one of the major South African producers, tried to gain US5/lb in weeks-long negotiations, but failed to persuade the consumers. It cannot be denied that the sudden and sharp depreciation of the resource-based currencies, such as South African Rand, in September was an indirect reason for the settlement.

In September, the chrome-resource-based currencies depreciated, all against U.S. Dollars, and all compared to July, by 20% with South African Rand, by 10% with Indian Rupee and by 15% with Russian Ruble, meaning improvement in producing costs for the producers of each country. Higher production costs was one of the factors for the producers to require benchmark increase even under the financial crisis in Europe, but the weaker currencies nullified the reasoning.

The price of charge chrome exported to China was ZAR6.5/lb CIF in July, which became ZAR8.3/lb CIF in September, thanks to the depreciated Rand. During the 2 - 3 months, the price in US$ was basically unchanged at US96 - 98/lb CIF China.

This sudden windfall encourages South African producers to increase production. In South Africa, where power rates soar annually by 20 - 30%, the producers do have a very good reason to advance ferrochrome production before the next power rate increase and the winter tariff, on top of the annual increase, are applied.

As South Africa's share in world high-carbon ferrochrome production became smaller (35% in 2010), and on the other hand China became a big power in procuring the alloy, based on a towering production capacity of stainless steel, the alloy's international pricing structure was made unstable and the price itself started to gradually drop. Especially the Chinese stainless steel mills are hard buyers, forcing not only the overseas suppliers but also the Chinese ferrochrome producers to operate unprofitably.

China imported 8.67 million tons in 2010 of chrome ore, which were, mostly through Chinese dealers, resold to ferroalloy producers in China. Overseas sellers tend to invite financially reliable Chinese traders as intermediates rather than doing deals directly with the ferroalloy producers, so that the sellers can avoid credit risks. The chrome ores piled up in the portyard now are mostly owned by those traders.

Crude stainless steel production by Chinese mills in 2011 is forecasted to amount to 13 - 14 million tons, which requires 4.3 - 4.5 million tons of ferrochrome (in material weight). To such demand, the current market is structured to supply about 2.4 million tons of the domestically-made in competition with about 2 million tons of the imported. Price of the imported material (spot, on a single month basis) is currently US98 - 99/lb CIF (VAT unpaid). Results of the monthly tenders held by the major mills to buy ferrochrome are circulated through various media, which undoubtedly affect buying attitude of the mills in Japan and Korea.

Since the second half of 2010 when Chinese stainless steel products started to flow into European market in an unnegligible scale, European mills have put their eyes to China much closer than before. On looking back the history, benchmark price system was originally established in order to maintain certain profitability of the South African producers and to ensure stable supplies from adequately scaled production capacity.

However, the original intention behind the benchmark system has been faded to some extent as South Africa's production share shrinks and most of the producers in the country are not any more well-off. China's greenfield plans, India as a more influential player, and Kazakhstan's expansion plan are all shaking factors for South Africa - the ferrochrome giant. ( to be continued )
last modified : Tue 25 Oct, 2011 [11:43]
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