TEX reported that 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 USD 5 per pound 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 2011, the chrome resource based currencies depreciated, all against US 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 cost 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 ZAR 6.5 per pound CIF in July, which became ZAR 8.3 per pound CIF in September, thanks to the depreciated Rand. During the 2 to 3 months, the price in USD was basically unchanged at USD 96 to USD 98 per pound CIF China.
This sudden windfall encourages South African producers to increase production. In South Africa, where power rates soar annually by 20% to 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 tonnes 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 port yard now are mostly owned by those traders.
Crude stainless steel production by Chinese mills in 2011 is forecasted to amount to 13 to 14 million tonnes, which requires 4.3 to 4.5 million tonnes of ferrochrome (in material weight). To such demand, the current market is structured to supply about 2.4 million tonnes of the domestically made in competition with about 2 million tonnes of the imported. Price of the imported material (spot, on a single month basis) is currently USD 98 to USD 99 per pound 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.
(Sourced from TEX Report Limited)
