Some major producers of ferrochrome are claiming, now more openly and in a louder voice, for an increase in the benchmark of Q2 2012.

A major ferrochrome producer who recently visited Japan explained to customers that the benchmark price for the coming Q2 was required to increase by USD 10 to USD 15 per pound. With the tailwind blowing from China where the price suddenly turned around in December 2011, the producers, now quite positive about the increase, are prepared to continue to make efforts to justify the raise of which figure will be made more specific by March 2012 when negotiations become more intensive.

It was China, as was expected, who triggered the turnaround under the bearish sentiment which had been prevailing in the market during the second half of 2011 due to the hasty sales from the fear of overproduction by the South Africans. The price as quoted by the Chinese major stainless steel mills for deliveries in December 2011 was at first CNY 7,000 per tonne, a big drop by some CNY 500 per tonne from the prices of November 2011, but the quote was too low to accept for the Chinese ferrochrome producers who preferred to cutback production more. In response to the move, the price of ferrochrome in the Chinese market turned around.

Current price level in the Chinese market is CNY 7,950 per tonne, up by CNY 400 to CNY 500 per tonne compared to the December 2011 prices, which is equivalent to USD 96 to USD 98 per pound with VAT unpaid.

The ferrochrome producers in China who smelt the imported chrome ores and the producers in India who smelt the domestic, Indian, chrome ores are thought to fall into the red if the ferrochrome price dips below USD 100 per pound. It is understandable therefore that Jindal, one of the major stainless steel mils in India, who has its own ferrochrome producing facilities, started procurement of ferrochrome (charge chrome) from abroad.

The South African producers failed to correct the benchmark price upward in the Q4 2011 and instead, the Q1 price slid even further down to USD 115 per pound ddp for European destinations.

As a matter of fact, other than the power rate rise in South Africa by another 25% which is scheduled in April 2012, various cost increasing factors which have not been fairly reflected to the past benchmark prices have to be taken fully into consideration during the next benchmark negotiations. The weaker Rand by 20% to 25% since October 2011 did partly absorb the increases in costs but it is more likely that the South African currency will recover its strength as a resource based currency someday in the near future.

For reference, the changes of benchmark price in the Q2 in the past two years were, up by USD 35 per pound in 2010 and up by USD 10 per pound in 2011.

(Sourced from TEX Report Limited)